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China tensions, Iran nuclear talks support oil price hike

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Oil prices traded close to a three-year high on June 24, supported by geopolitical tensions, including China and Iran, falling US inventories and prospects for a strong economy.

Brent traded a $74.74 a barrel while US crude traded at $72.58 a barrel on June 24. Both benchmarks had hit their highest since October 2018 on June 23 before paring back gains, according to Reuters.

“My sense from the gutter is really saying there is pressure for the oil price to go up still and I know some of my trader friends are putting it down as a 25 percent chance to go to 100 dollars quite soon,” Justin Urquhart Stewart, co-founder of Regionally, a UK Regional Investment Platform, told New Europe by phone on June 24.

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“Why would that be occurring? Well, the answer is, if we still think global demand is increasing, what would push against it? The answer is some of the geopolitical concerns we have been having which may well as you spot further this week/next week when you see some of the western fleet appearing in the South China Sea. That will create a level of nervousness there,” he added.

Oil traders are also watching the nuclear deal talks following the election of new Iranian President Ebrahim Raisi and prospects of lifting US sanctions against Tehran. A revival of the 2015 Joint Comprehensive Plan of Action, or JCPOA, and lifting of US sanctions could increase Iranian oil production by over 1.5 million barrels per day.

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On June 23, Tehran reportedly said the United States had agreed to remove all sanctions on Iran’s oil and shipping but Washington said “nothing is agreed until everything is agreed” in talks to revive the 2015 Iran nuke deal. Despite Raisi’s signal that he would support a nuclear deal, Urquhart Stewart said the US is in rush to lift sanctions.

“It certainly not a done deal and (US President Joe) Biden is in no rush to do anything there. But if there is an agreement quickly, there will be quite a level of astonishment. I think it will spin out for some time yet. The Iranians are obviously quite desperate to try to get something particularly with the new president coming in. I just think at the moment that the Americans see no particular reason to be rushing into a deal,” Urquhart Stewart said.

“They have done the anti-Trump thing which is, ‘We are now sitting down negotiating,’ but ‘We don’t to actually force the deal too much at the moment’. The Americans have got the issue, particularly I think China is going to be an increasing issue for them now in the next few weeks. I think there is going to be saber-rattling going on and that will impact on overall market nerves,” the London-based expert explained.

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During an EU-US Summit recently, the US highlighted challenges imposed by China and Russia. “Russia is seen as a saber-rattling threat but not an economic threat,” Urquhart Stewart told New Europe. “Russia is probably a bigger threat to Germany with (Russian President Vladimir) Putin’s sticking fingers on the gas taps. But, no, in terms of geopolitical issues, China is much more important and saying there is going to be a lot more NATO fleet vessels appearing in the South China Sea and that will annoy the Chinese a lot. But, on the other hand, remember that the Chinese have a symbiotic relationship with the Americans. They need each other. But politically, of course, Biden needs to be showing he is not Trump but, on the other hand, he is not weak so he has to play it quite carefully,” Urquhart Stewart argued.

Turning to the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+ that meets on July 1, Urquhart Stewart said the group may further ease last year’s record output cuts from August as the economy strengthens, anticipating an increase in demand.

“I think the global economy is actually looking pretty strong for the rest of this year subject, of course, to geopolitical issue, the bounce back will be pretty strong. Let’s assume the pandemic is being managed, the next wave is being managed, then G7 nations find themselves in a good position, China is in a good position, India is still going to have problems but that’s doesn’t have an impact overall,” Urquhart Stewart said, adding, “So, I think the demand will continue to be rising for this year”.

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