Crude Prices Soar on Supply, Stockpile News https://www.wsj.com/articles/oil-ris

Question

Crude Prices Soar on Supply, Stockpile News

https://www.wsj.com/articles/oil-rises-as-u-s-threatens-iranian-oil-customers-1530095199

Crude Oil prices approached the highest close in 3.5 years on Wednesday over news of threats to global supply and sharply depleted US oil stockpiles. West Texas Intermediate futures rose over 3%, touching $72.83 a barrel, as Brent crude rose to $78.06 per barrel, only $2.50 off its multiyear high. The news that caused a lot of this was the Energy Information Administration said U.S. crude stockpiles fell nearly 10 million barrels last week, which was a larger than expected reduction.

The rally started on Tuesday after the U.S. threatened to sanction countries that don't reduce their imports of Iranian crude to "zero" by November. Iran currently exports around 2.4 million barrels a day of crude, of which analysts expect 400,000 to 1 million barrels could be at risk once sanctions are fully reinstated in November. Saudi Arabia and Russia are expected to increase production in order to counter the reduction from Iran.

Questions:

1. If oil prices continue to rise, do you think any pressure will be put on American leadership to lower them?

2. The U.S. threats on countries that buy Iran's oil is likely to pur more pressure on Asian countries such as India, South Korea, and Japan. These countries are expected to ask for waivers to the upcoming sanctions. Do you think a waiver will be granted, and why do you think these countries feel so much pressure by these sanctions?

3. With increasing oil prices, do you think a return to U.S. oil infrastructure could be in the future? If so, what type of economic implications would this have?

Explanation / Answer

Oil prices have profound impact on various economic activities. Any increase in oil prices leads to bigger import bill, which may not only lead to deficits but also may increase transportation costs, ultimately leading to inflation in the economy. Since high oil prices tend to have strong negative influence on the domestic economy of importing nation, the US government may be forced to take steps to lower oil prices, in order to safeguard the concerns of various sections of the economy.

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