Oil prices heat up over Strait of Hormuz tension / News / News agency Inforos
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Oil prices heat up over Strait of Hormuz tension

Under US pressure consumers waive Iranian oil

Oil prices heat up over Strait of Hormuz tension
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The world oil market situation remains relatively stable, with the price for Brent crude still being in the comfort zone — for the two decades of July, it has not left the range of between $62 and $67 per barrel. As of today, the benchmark crude price is close to the center of the range specified.

Meanwhile, the forecast consensus of global investment groups and field-specific analytical institutions for 2019 is so far pointing to the "black gold" supply surplus.

For instance, July 19 saw the International Economic Agency (IEA) revise the forecast for oil demand growth in 2019 over the global economic growth slowdown amid a trade conflict between the United States and China. According to IEA Executive Director Fatih Birol, the forecast was cut by another 100 thousand barrels to 1.1 million barrels per day. This figure may deteriorate if the economy, especially in China, keeps declining, he said.

"China is experiencing its slowest economic growth in the last three decades, so are some of the advanced economies ... if the global economy performs even poorer than we assume, then we may even look at our numbers once again in the next months to come," Birol summed up in an interview with Reuters.

The global investment group JPMorgan points to a significant slump in demand for oil with outperforming supply growth rates from non-OPEC countries, and has reported a decrease in its forecasts for the price of a Brent barrel from $65 to $59 by the end of 2019, and from $59 to $52 by the end of 2020.

However, geopolitics can reverse everything at any time. The Persian Gulf situation is getting increasingly tense, with attacks on tankers giving way to their detention.

On the evening of July 19, the Navy of the Islamic Revolutionary Guard Corps (IRGC, an elite component of Iranian armed forces) seized British oil tanker Stena Impero in the Strait of Hormuz and then escorted her to the port of Bandar Abbas. The tanker's crew comprising 23 people, including three Russians, is still on board. The Iranian authorities have assured that the crew is fine, and the tanker is anchored outside the port. However, the crew is not planned to be released until the investigation ends.

In fact, the Stena Impero incident has become a response by the Iranian authorities to the detention of an Iranian tanker by the British Gibraltar on July 4. The ship called Grace 1 was suspected of violating EU sanctions against Syria. As part of the investigation, her captain, chief officer and two other sailors were detained. The court ruled out to keep them in custody until August 15.

Britain's Cobra crisis response committee recommended that shipping companies avoid the Strait of Hormuz after Stena Impero detention. Following the committee's emergency meeting in London on the night of July 20, the British government regarded Iran's actions as "a clear challenge to international freedom of navigation."

British Foreign Secretary Jeremy Hunt threatened Tehran with "serious consequences" if it fails to set the tanker free in the nearest future. However, according to Hunt, Britain is looking at a diplomatic way to resolve the situation rather than at military options, but is "very clear that it must be resolved," Hunt stressed.

The scandal over the detained British-controlled tanker raised a storm of indignation not only with the British Foreign Office, but also with the US authorities. At that, the Americans are building up their military presence in Saudi Arabia, being an obvious preparation for military actions against Iran. The very threat of a possible military clash between Iran and the United States in the Persian Gulf keeps the oil market on tenterhooks and does not allow the barrel become cheaper due to information about the global oil demand downward trends.

In the meantime, Iran is looking for ways to circumvent US sanctions and proceed with supplying its oil to the world market. This came from Iranian Foreign Minister Javad Zarif. "We will continue to sell our oil. Production has declined, but we will find ways to smooth it over. As you can see, our currency market has stabilized after a year of fluctuations, the situation is improving," Zarif told CNN.

However, the trend towards replacing Iranian crude by outside consumers is becoming increasingly noticeable in practical terms. The most recent example is the transition of the State Oil Company of the Azerbaijan Republic (SOCAR) to Russian energy resources to maintain its new oil refinery in Turkey. What is meant here is Star Refinery on the Aegean coast. As the company's Director General Mesut Ilter announced on July 22, an agreement had been reached with Rosneft to purchase one million tons of the Urals oil. "If there were no restrictions, we would buy Iranian crude," Ilter said, adding that the refinery can purchase raw materials anywhere under the current model, which Azerbaijani oil does not fit in. But Russia's does, and does pretty well.

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