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Oil Hits 3-Year High Amid Continued Geopolitical and Sanction Concerns

May 15, 2018 at 13:50 by Matt Jackson

Oil prices rose to their highest point in three and a half years as the market continues to dwell on US sanctions against Iran and trouble in the Middle East. Increases have been helped by continued support from OPEC nations, who have restricted supply of oil and have hinted that they would like to see prices reach as high as $80 per barrel and would not be dissatisfied if it peaked at $100.

The withdrawal of the USA from the Joint Comprehensive Plan of Action (JCPoA), commonly known as the Iran nuclear deal, has been the primary driving force behind oil prices in recent months. As well as withdrawing from the deal, Trump has also said that he will reinstate sanctions against the nation and that countries buying oil from Iran may also be hit with additional tariffs in trade deals with the USA. Exact details of the sanctions have yet to be announced. Despite the threat of sanctions and tariffs, however, the remaining JCPoA nations have declared an interest in proceeding without the USA. Analysts have also suggested that China is unlikely to reduce its demand for Iranian oil. It has long term crude deals in place, and Iran offers the opportunity to pay for the commodity in Yuan, meaning that the benefits of the deal might outweigh any possible action imposed against them.

OPEC has said that it will attempt to make up for any shortfall caused by sanctions against Iran. Nations like Saudi Arabia have been curtailing supply of oil in a bid to try and increase prices per barrel. It has been suggested that this arrangement could continue beyond the end of the year, when it was initially meant to end. The most recent OPEC report shows only a slight increase in oil production, and this has been taken as a sign that they will continue to withhold supply until oil reaches a desirable price.

Further turmoil in the Middle East has also helped with an uptick in prices. 58 people were killed on Monday in fighting between Israelis and Palestinians. There is expected to be further trouble as the week progresses, causing concerns over the supply of oil from the region.

WTI crude oil traded at nearly $72 per barrel earlier in the day, but has settled at $71.44 — an increase of 0.68%. Brent crude, meanwhile, has seen its price increase to $78.75 per barrel, which represents an increase of 0.66%.

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