Oil Prices Hits $80 per Barrel, Highest Since September

Oil prices hit its highest since November 2014 at $80 a barrel, gaining 20 percent since January. Prices rose on concerns on possible fall of Iranian exports, reducing supply in a much tighter market conditions.

Brent crude futures hit $80, rising 69 cents at $79.97 per barrel. US West Texas Intermediate (WTI) crude futures rose 64 cents at $72.13 per barrel, also its highest since November 2014.

The prospects of a sharp drop in Iranian oil exports in the coming months is due to renewed US sanctions as per US president Donald Trump’s decision to withdraw from an international nuclear deal with Tehran, Iran’s capital, has lifted oil prices in recent weeks.

Macro & Commodity Research Head at Swiss Bank Julius Baer said, "The geopolitical noise and escalation fears are here to stay. Supply concerns are top of mind after the United States left the Iran nuclear deal."

Global inventories of crude oil and other refined products dropped sharply in recent months due to robust demand and production cuts by the world’s top producing countries.

Impact in Asia

Furthermore, the Asian demand for crude reached its record, pushing the cost to $1 trillion this year. It is twice than its value during the market lull on 2015-2016.

RBC Capital, a Canadian investment bank, warned in a note that Asia is the most vulnerable to an oil price spike.

According to Industry Data report, Asia-Pacific consumes more than 35 percent of the 100 million barrels of oil the world uses everyday, with the region’s global share steadily rising.

US dollar also grows stronger, affecting oil import-reliant Asia. Surging costs could have an inflationary effect that will consequently hurt consumers and companies.

Inflation

Morgan Stanley said, “A rising oil price therefore shifts the entire cost curve higher.”

China, Asia and the world’s biggest boil importer, ordered 9.6 million barrels per day in April—almost 10 percent of the world’s global consumption. At the current prices, Chinese oil import may cost $768 million per day or a whopping $23 billion per month.

Most damage will be done on other Asian countries, such as India and Vietnam, which not only rely heavily on imports, but also where national wealth is not yet large enough to absorb sudden increases in fuel costs.

“Poorer countries with limited borrowing capacity may face financing difficulty amid higher import bills,” RBC said.

Unless fuel is heavily subsidized, households and businesses in less wealthier nations will more likely be vulnerable in rising oil prices compared to those in wealthier nations.

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