John LaForge, head of real asset strategy at the Wells Fargo Investment Institute, agrees. "Those people affected by the higher prices at the pump, are likely cutting back on other expenses like shopping and dining out". "Around a million barrels of oil a day is likely to disappear from global oil markets if the USA sanctions on Iran bite", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
On the supply side, Iran's impact on the global oil market has yet to be quantified or seen.
- USA sanctions against Iran could further tighten the oil market, depending on what restrictions are put on Iranian oil exports. Opec has an adequate "buffer" of potential production to offset barrels lost from a re-imposition of Iranian sanctions, he said in an interview with Bloomberg Television.
At the same time, China's domestic crude oil production has been languishing near June 2011 lows in the first quarter this year, prompting higher imports to meet growing demand. Iraq's compliance was at 63%, and it was the only member not to have curbed production as agreed under a deal that took effect January 1, 2017 and is scheduled to run through the end of 2018.
China's oil demand growth has so far this year exceeded expectations, and Goldman Sachs, for example, says that growth could be even "higher than now estimated".
The upcoming restored USA limits against OPEC-member Iran and robust demand for oil are what now keeping prices well supported, according to analysts. Its oil production level is now at its low since 1988, excluding strikes at its state-owned oil company in late 2002 and early 2003.
As of this writing, the oil companies that already advised on price increases include Flying V of the Villavicencio Group, Pilipinas Shell Petroleum Corporation, PTT Philippines, Chevron (which is carrying the Caltex brand) and Seaoil effective 6:00am on Tuesday; while the rest of the industry players are expected to follow the price adjustment trends.
"So far the impact on the global economy has been minor and negligible, but the build-up of potentially disruptive concerns has increased", OPEC noted in its monthly oil market report.
While there are many reasons oil prices may continue to climb in the short term, that is not the picture the market is painting for the long term.
"By 2019, U.S production can pick up as pipelines are expanded and OPEC and Russian Federation can bring back production", says Lee. "Saudi Arabia appears to be focusing more on pushing up crude higher rather than restoring the balance in oil's supply and demand, and that is underpinning prices". That's a big a if in the political current environment.