Economy US

Iran Sanctions and The Effect on Oil Prices

Matt Badiali: Iran Sanctions and Oil Prices
Matt Badiali: Iran Sanctions and The Effect on Oil Prices

Iran Sanctions Fell Flat, but Matt Badiali Expects Oil Prices to Rise in 2019

U.S. gas prices have reached a national average of $2.67, which represents the biggest drop of the year. Despite this, consumers need to be aware that the annual average is still 12 cents above 2017 and national resources expert Matt Badiali predicts a large price increase at the pumps by next summer. Therefore, you might want to consider this when making plans for your summer 2019 holiday gatherings and vacations.

How Did Prices Get to this Point?

What the Iran Sanctions mean for oil production and consumers
What do the Iran Sanctions mean for worldwide oil production and consumers?

President Donald J. Trump warned the world about new Iran sanctions, and this sent other oil-producing nations into a rush of production. The worldwide market anticipated a scenario that would make Iran a non-viable oil resource for any nation that wanted to remain a U.S. trading partner. However, when the Iran sanctions were officially announced, they had lost almost all of their bite.

For the next six months, eight major trading nations do not have to follow the Iran sanctions, including China, India and Japan. This allows Iran’s supply of oil to stay in the game, thereby flooding the market with much more oil than expected. As a result, the cost of crude oil has down-shifted worldwide because the current supply now outweighs the demand.

What Will Happen Six Months from Now?

The sanction exceptions went into place on November 4, 2018, and are expected to end on May 4, 2019. During this time period, it’s certainly plausible for other nations such as the U.S. to ramp up oil production again, but Matt Badiali doesn’t believe it will be enough. As he pointed out to the New York Times, the world will need to drastically increase production to keep up with the 2019 summertime demands.

“The market is overestimating the amount of oil that could come on. Can the world produce an extra 500,000 barrels a day? I don’t see it,” Badiali explained.

Keep in mind that the U.S. most likely wouldn’t have agreed to permit eight nations to skirt around Iranian sanctions if it wasn’t for one simple fact: there’s not enough oil being produced outside of Iran to meet the current demand, regardless of the short-term worldwide surplus.

Can the Rest of the World Make Up for Iran’s Oil?

As a senior analyst for Banyan Hill, Matt Badiali puts his extensive background in geology and natural resources to work analyzing the world of energy production. He casts a sober light on the second half of 2019 due to oil production problems that have plagued Venezuela.

Within the last 12 months, Venezuela has cut down oil production by 600,000 barrels daily. If they cannot stop this steady decline, the market will be hit by a worldwide supply scarcity during the next six to 12 months. The only truly viable way to prevent this is by eliminating Iranian oil sanctions altogether. Even if this happened, there could still be some short-term fallout because Iran is virtually certain to scale its production in anticipation of a huge purchasing decline after May 4.

How will the Stock Market Respond?

Matt Badiali believes prices will rise at the pump in 2019
Natural resources investing expert Matt Badiali believes gas prices will rise in the summer of 2019.

Crude oil prices experienced a huge price surge of approximately 75 percent between June 2017 and October 2018. All of this changed in early November when President Trump’s sanction threats failed to actually prevent Iran from working with many of the countries that have the biggest demand for oil. In fact, crude oil plummeted by 20 percent in only two weeks, which transformed it from a powerful bull market to a weak bear market.

Crude oil stockholders may be terrified at the moment, but don’t let it stress you out too much because Matt Badiali has made it clear that these poor market conditions won’t last. Writing for Banyan Hill, Badiali reminds us that the last time “the market threw in the towel, the price rose by 17 percent. That’s what I expect to happen again this time.”

To put it another way, you might not be able to recover all of your losses from the recent catastrophic two-week drop in stock value. However, your oil stocks should start earning decent money again by the summer.

Is This a Good Time to Pick-Up Discounted Oil Stock?

Many nervous investors will look to unload some of their oil stock this month. If the price of crude oil continues to decline before the market corrects itself, you’ll see even more opportunities to pick-up cheaper than usual stock during the next few months. Should you take the risk by picking up some of these stocks at a bargain price?

The New York Times asked Badiali and several other experts to predict the average price of crude oil next year. Oil trading worldwide has seen prices dip below $60 per barrel in response to the lenient Iran sanctions and economic issues in China. Expected mid-2019 prices range from $72 to $80 per barrel, with Badiali and Crescent Petroleum President Badr H. Jafar predicting the highest gains.

Of course, predictions are fallible, especially in a volatile world market. The previously mentioned issues with China’s economy, which is expected to fall into a recession soon, could have a big impact on the cost of oil next year. This is definitely something to consider before making a big investment, but it’s also worth noting that crude oil’s usefulness isn’t going to run out in the foreseeable future.

Everyone uses crude oil, so you can reasonably expect the oil market to correct itself at some point. The big unanswerable question is whether or not this will happen soon enough to justify a big investment right now. After more than two decades of hands-on work within the energy, mining and agricultural fields, Matt Badiali seems to think it will, although you probably shouldn’t expect the possibility of massive gains until well after the six-month exemption on sanctions expires.


Crude Oil and Petroleum Prices to Rise in coming days