Oil was the major ASX small cap theme last week — due to higher oil prices (and higher stock prices) driven by Donald Trump’s exit from the Iran nuclear agreement

But China and India are unlikley to stop buying Iranian oil — and that might undermine US sanctions on Iran.

Moving forward, oil prices — the one factor driving renewed interest in Australia in the sector — are likely to be set by a different set of competing interests.

A Bloomberg New Energy Finance analysis in March suggested Saudi Arabia needs $US80 a barrel in order to get its $2 trillion Aramco Initial Public Offer to fly.

At about $2 trillion, Aramco — the national oil company of Saudi Arabia — is expected to be the biggest IPO in history if a float goes ahead sometime next year.

Brent crude, the global benchmark, is now trading at about $US77 a barrel while the US benchmark West Texas Intermediate is about $US70.

Those prices are a result of the OPEC supply cuts finally beginning to be felt in June last year, says Bloomberg’s head of short term oil research Bert Gilbert.

>> Scroll down for a list of oil juniors and their share price performance last week

“Saudi has pledged to cover the lost Iranian barrels in the market, but given their ongoing desire to increase oil prices to improve the Aramco IPO, it’s going to be interesting to see how much needs to come offline for them to come in,” Mr Gilbert told Stockhead.

For the 20 or so US-focused ASX-listed oil juniors, the story is a little different as it’s no longer price that’s a constraint, but infrastructure.

Re-orienting towards the East

Iran is estimated to have exported about 2.1 million barrels a day on average over the past four months.

China took about 625,000 and India about 520,000. Since the start of the first round of sanctions in 2006 both countries have created contracts which can be settled in non-US dollar currencies, allowing them to bypass a US embargo.

“I do not expect that those countries are going to alter their imports because the US has violated the agreement,” Mr Gilbert said.

Japan and South Korea buy about 200,000 together but both have applied for waivers so will likely continue to buy from Iran.

Europe has averaged about 470,000 and will likely stop those imports. This means a total of 670,000 barrels a day is at risk of being pulled from global markets.

Who’s going low and who’s going high

It’s the struggle between Saudi Arabia’s interests, the OPEC “have nots”, and the US which is likely to have more of an impact on global prices.

If Saudi Arabia needs oil above $US80, US politicians need it to stay low so American drivers don’t start complaining.

According to the US Energy Information Administration’s short term outlook last week, US pump prices are expected to average $US2.90 a gallon this summer, compared to $US2.41 last year.

This is thanks to higher oil prices created by OPEC-plus-Russia’s supply cuts which were designed to lift prices.

“Up until June last year, the US used to receive about 1.3 million to 1.4 million barrels a day of Saudi crude, and that number has dramatically reduced,” Mr Gilbert said.

“It’s almost half of that now.”

He says the risk is that OPEC’s “have nots”, such as Iraq and Nigeria which have the capacity to produce more oil than they are now, break ranks to take advantage of high prices and flood the market.

US bottlenecks

The growth of US shale oil is not interchangeable with those lost Iranian barrels, says Mr Gilbert.

“Even if they were interchangeable, US [refining] infrastructure capacity issues are making it difficult to move the oil from the prolific Permian basin to the global markets.”

US oil is currently is being driven by production in the Permian basin in West Texas, where companies like Elk Petroleum (ASX:ELK), Key Petroleum (ASX:KEY) and Winchester Energy (ASX: WEL) are operating.

If it can get to the coast, Permian crude is increasingly being exported, Mr Gilbert says.

He also says the Permian oil story has moved on from producing as much as possible to generating cash from existing reserves.

There is now a “huge focus” on shale oil by large companies such as Exxon.

Brookside Energy (ASX:BRK), which packages small leases with proven reserves in a popular Permian area called Anadarko to sell to those larger companies, has identified these trends as the way to make money from the current US oil story.

While the Trump administration has changed the US position on Iran, control over oil prices still lies in the hands of OPEC and the upstart US shale producers.

>> Here’s a list of ASX oil juniors and their share price performance last week

ASX code Company Weeky price change (May 4-11) Price May 11 Market Cap
IPB IPB PETROLEUMI 0.875 0.015 1.8M
BAS BASS OIL 0.25 0.005 11.7M
BRK BROOKSIDE ENERGY 0.25 0.015 13.8M
OEL OTTO ENERGY 0.213114754098 0.074 119.4M
SEA SUNDANCE ENERGY 0.196721311475 0.073 521.9M
PVE PO VALLEY ENERGY 0.193548387097 0.037 18.0M
ABL ABILENE OIL AND 0.166666666667 0.007 2.8M
TEG TRIANGLE ENERGY 0.155844155844 0.089 18.5M
COI COMET RIDGE 0.140625 0.365 233.4M
CTP CENTRAL PETROL 0.125 0.18 120.2M
FPL FREMONT PETROLEU 0.125 0.009 6.1M
AOW AMERICAN PATRIOT 0.12 0.028 7.5M
AJQ ARMOUR ENERGY 0.0823529411765 0.092 36.9M
BRU BURU ENERGY 0.0555555555556 0.38 168.5M
MEL METGASCO 0.0545454545455 0.058 22.7M
STX STRIKE ENERGY 0.0540540540541 0.078 86.5M
RAW RAWSON OIL AND G 0.046511627907 0.045 4.4M
SGC SACGASCO 0.0416666666667 0.05 13.0M
ICN ICON ENERGY 0.04 0.026 14.9M
BUL BLUE ENERGY 0.0357142857143 0.145 161.7M
HZN HORIZON OIL 0.0333333333333 0.155 195.3M
SEH SINO GAS & ENERG 0.0285714285714 0.18 391.6M
EEG EMPIRE ENERGY GR 0.0285714285714 0.036 49.3M
NEW NEW ENERGY SOLAR 0.0215827338129 1.42 468.5M
JPR JUPITER ENERGY 0.0149253731343 0.068 10.4M
ATS AUSTRALIS OIL & 0.012987012987 0.39 353.1M
AVD ANTILLES OIL AND 0 0.021 3.4M
BUY BOUNTY OIL & GAS 0 0.006 5.7M
BYE BYRON ENERGY 0 0.385 274.0M
COE COOPER ENERGY 0 0.37 584.4M
EMP EMPEROR ENERGY 0 0.003 2.7M
EOR ENHANCED OIL & G 0 0.008 7.9M
GGX GAS2GRID 0 0.003 3.4M
JKA JACKA RESOURCES 0 0.002 921.7k
KEY KEY PETROLEUM 0 0.01 13.5M
KPL KINA PETROLEUM 0 0.071 27.2M
LKO LAKES OIL NL 0 0.003 82.9M
NGY NUENERGY GAS 0 0.06 88.9M
OEX OILEX 0 0.003 7.5M
PCL PANCONTINENTAL 0 0.004 21.0M
RRS RANGE RESOURCES 0 0.004 30.4M
RLE REAL ENERGY CORP 0 0.096 26.8M
REY REY RESOURCES 0 0.22 46.7M
SSN SAMSON OIL & GAS 0 0.002 4.9M
TPD TALON PETROLEUM 0 0.005 5.1M
TMK TAMASKA OIL & GA 0 0.003 5.9M
TOU TLOU ENERGY 0 0.14 44.5M
TNP TRIPLE ENERGY 0 0.054 2.3M
WBE WHITEBARK ENERGY 0 0.008 7.9M
WOF WOLF PETROLEUM 0 0.008 4.8M
PSA PETSEC ENERGY -0.010752688172 0.092 30.7M
TAP TAP OIL -0.0133333333333 0.074 31.5M
88E 88 ENERGY -0.0243902439024 0.04 216.8M
CUE CUE ENERGY RES -0.0281690140845 0.069 48.2M
GBP GLOBAL PETROLEUM -0.0285714285714 0.034 6.9M
CVN CARNARVON PETROL -0.0322580645161 0.15 180.2M
FDM FREEDOM OIL AND -0.0327868852459 0.295 273.1M
EXR ELIXIR PETROLEUM -0.0333333333333 0.087 19.3M
ELK ELK PETROLEUM -0.038961038961 0.074 102.1M
GAS STATE GAS -0.047619047619 0.2 27.0M
WEL WINCHESTER ENERG -0.0540540540541 0.035 9.7M
TDO 3D OIL -0.0714285714286 0.065 16.6M
MAY MELBANA ENERGY -0.0909090909091 0.01 16.7M
ENB ENEABBA GAS -0.1 0.009 4.7M
HE8 HELIOS ENERGY -0.106382978723 0.042 58.0M