The loss of up to two million bpd of Iranian crude as well as possible supply outages from politically fragile producers could lead to price spikes
Brent could rally up to $100 even as it breaches the $80 mark
Benchmark Brent could rally up to $100 per barrel as it topped $80 to reach a four-year high on Monday amid concerns over lost Iranian barrels and limited spare capacity once Opec and its allies bring in more supply.
Trading houses Trafigura and Mercuria said that oil prices could inch towards $100 per barrel by the end of the year or early 2019, citing a loss of almost two million barrels per day of export from Iran as the biggest factor behind the rally.
“The market simply does not have an adequate supply response for a 2m bpd disappearance of oil from the markets,” Daniel Jaeggi, president of commodity merchant Mercuria Energy Trading told an energy conference in Singapore, news agencies reported.
Brent futures breached the $80 per barrel mark on Monday, after having averaged $72 per barrel for much of the year and rallying around $79 per barrel since August. The rise comes amid pledges by the Arabian Gulf Opec oil producers of sufficient oil production capacities to meet demand, even as the group remained vague about allotment of quotas during its latest technical committee meet on Sunday.
UBS, which revised its 12-month forecast for Brent to $85 per barrel in June, said it “would not rule out a spike in oil prices to the $100 per barrel mark” over the coming year, if further supply disruptions materialised.
“Oil can hit $100 per barrel if some disruptions also occur in other fragile Opec states such as Libya, Nigeria, or Iraq, and/or Venezuelan production continues to fall,” said Giovanni Staunovo, a commodity analyst at the Swiss lender.
While much will hinge on the volume of disruption and the period over which the loss would be sustained, Mr Staunovo also cited the decline in spare capacity to "lows not seen since 2008" as well as curtailment of US output due to pipeline constraints as other factors behind the oil rally.
“In the second quarter of 2019 we could have again a stronger increase in US supply, once the pipeline constraints get fixed,” he added.
Japan’s MUFG, which maintains a base case oil price projection of $72 per barrel for 2018, views any rally of Brent up to $100 per barrel as “short-lived”.
“It will merely lead to demand destruction becoming more likely, through a combination of enhanced efficiency and a slowdown in the global economy,” said Ehsan Khoman, MUFG’s head of MENA research and strategy.
“Moreover, higher oil prices could prompt the United States to consider extraordinary measures such as the usage of [its] strategic petroleum reserves to taper [domestic] gasoline prices ahead of the its mid-term elections in early November,” he said.
Rapid growth of shale backed by greater efficiency learnings is very likely in the event of a higher oil price environment, cautioned Mr Khoman.
"Succinctly put, shale remains the firm global swing oil producer. The shale response over the medium-term is likely to be robust,” he added.
Opec in its latest World Oil Outlook observed that peak tight oil supply, mainly from the US, will account for 15 per cent of all global output by the late 2020s.