Oil prices hit $80 a barrel on Thursday for the first time since November 2014 on concerns that Iranian exports could fall because of renewed US sanctions, reducing supply in an already tightening market.
Besides Asia’s demand is at a record, pushing the cost of the region’s thirst for crude to $1 trillion this year, about twice what it was during the market lull of 2015/2016.
US President Donald Trump's decision this month to withdraw from an international nuclear deal with Iran and revive sanctions that could limit crude exports from OPEC's third-largest producer has boosted oil prices.
Oil prices have gained 20 per cent since January to just shy of $80 per barrel LCOc1, a level not seen since 2014.
With the US dollar .DXY — in which virtually all oil is traded — also growing stronger, concerns are rising that economies will take a hit, especially in import-reliant Asia. Surging costs could have an inflationary effect that will hurt both consumers and companies.
Asia-Pacific consumes more than 35 percent of the 100 million barrels of oil the world uses each day, according to industry data, with the region’s global share steadily rising.
Asia is also the world’s smallest oil producing region, accounting for less than 10 per cent of output.
US bank Morgan Stanley said this week that diesel use contributes 10-20 per cent to cash costs for miners, while oil contributes from 4 percent to 50 percent to the cost of power generation, depending on a company’s or country’s fuel mix. “A rising oil price therefore shifts the entire cost curve higher,” it said.