The US administration has decided not to reissue waivers to the buyers of Iranian oil. This has helped push Brent crude prices up to USD 74.60/bbl, a gain of 3.7% since Thursday’s pre-Easter closing levels. All buyers of Iranian oil must completely end imports from 2 May onwards, with the current set of exemptions, issued to China, India, Japan, South Korea, Italy, Greece, Turkey and Taiwan in November 2018, expiring on 1 May.

The US administration has indicated that Saudi Arabia and the United Arab Emirates have committed to provide sufficient supply to the oil markets. But the response to the US move may not be as straightforward as the US statement suggests:

* Last year’s eleventh-hour decision by the US to grant waivers on Iran oil sanctions contributed to crude’s sharp price drop in 4Q18. Considering last year’s experience we expect Saudi Arabia and its allies to react cautiously to customers’ needs rather than pre-emptively to ramp up production.

* China has already indicated its opposition to the US implementation of unilateral sanctions, so it looks unlikely that Iranian exports fall to zero. However, with South Korea, Japan and eventually India likely to cut their imports to zero, Iran’s oil exports will soon fall below 1mbpd.

* Thanks to over-compliance with the current production cut deal, the Saudis and its allies still have available capacity to offset a decline in Iranian exports, and we expect the OPEC+ compliance rate to decline again from May onwards. However, amid seasonally higher oil demand into the summer, the oil market is likely to be very sensitive to any further disruptions in Libya, Venezuela or Nigeria.Overall we expect the market to tighten further and continue to expect Brent to trade in a USD 70–80/bbl range this quarter. A higher oil price supports our preference for energy stocks in the Eurozone.