Oil prices could rise towards $100 per barrel towards the end of the year or by early 2019 as sanctions against Iran bite, commodity merchants Trafigura and Mercuria said on Monday at the Asia Pacific Petroleum Conference (APPEC) in Singapore.
The news comes as global benchmark Brent crude jumped more than 3 percent on Monday to a four-year high above $80 a barrel after Saudi Arabia and Russia ruled out any immediate increase in production despite calls by U.S. President Donald Trump for action to raise global supply.
Meanwhile, almost 2 million barrels per day (bpd) of crude could be taken out of the market as a result of the U.S. sanctions against Iran by the end of the fourth quarter this year, said Daniel Jaeggi, president of commodity merchant Mercuria Energy Trading, making a crude price spike to $100 a barrel possible.
"We're on the verge of some significant volatility in Q4 2018 because depending on the severity and duration of the Iranian sanctions, the market simply does not have an adequade supply response for a 2 million barrel a day disappearance of oil from the markets," Jaeggi said.
Washington has already implemented financial sanctions against Iran and it plans to target the country's oil exports from November 4, putting pressure on other countries to also cut Iranian crude imports.
Ben Luckock, co-head of oil trading at fellow merchant Trafigura said crude oil prices could rise to $90 per barrel by Christmas and to $100 by the New Year as markets tighten.
Oil prices have been rising since early 2017, when the Organization of the Petroleum Exporting Countries (OPEC) together with other suppliers including Russia started withholding output to lift crude values.
Unplanned disruptions from Venezuela to Libya and Nigeria have further tightened the market just as global demand approaches 100 million bpd for the first time.
The threats of disruption as well as the early supply cuts have helped to lift Brent crude futures to nearly $80 a barrel this month, a level not seen since 2014.
With U.S. sanctions against Iran, the third-largest producer in OPEC, looming, U.S. investment bank J.P. Morgan said in its latest market outlook that "a spike to $90 per barrel is likely" for oil prices in the coming months.
OPEC and other oil producers are considering raising output by 500,000 bpd to counter falling supply from Iran.
OPEC and non-OPEC states, including top producer Russia, gathered in Algiers on Sunday for a meeting that ended with no formal recommendation for any additional supply boost to counter falling supply from Iran.
“The market’s still being driven by concerns about Iranian and Venezuelan supply,” said Gene McGillian, director of market research at Tradition Energy in Stamford. “The failure of the producers to address that adequately this weekend is creating a buying opportunity.”
Brent crude settled up $2.40 or 3.1 percent at $81.20 a barrel, after touching an intraday high of $81.39, the highest since November, 2014. U.S. light crude settled up $1.30, or 1.8 percent, higher at $72.08.
OPEC leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, on Sunday effectively rebuffed Trump’s demand for moves to cool the market.
“I do not influence prices,” Saudi Energy Minister Khalid al-Falih told reporters on Sunday.
Trump said last week that OPEC “must get prices down now!”, but Iranian Oil Minister Bijan Zanganeh said on Monday OPEC had not responded positively to Trump’s demands.
“It is now increasingly evident, that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next three-six months that it will need to resolve through higher oil prices,” BNP Paribas oil strategist Harry Tchilinguirian told Reuters Global Oil Forum.
Commodity traders Trafigura and Mercuria said Brent could rise to $90 per barrel by Christmas and pass $100 in early 2019, as markets tighten once U.S. sanctions against Iran are fully implemented from November.
JPMorgan said U.S. sanctions on Iran could lead to a loss of 1.5 million barrels per day, while Mercuria warned that as much as 2 million bpd could be knocked out of the market.
Concerns about production shortfalls are encouraging traders to place more long bets, boosting Brent prices, said Brian LaRose, a technical analyst at United-ICAP.
“This is the seventh time over the last couple of months that we have challenged the highs,” he said, referring to individual monthly contracts, rather than a continuation contract. If Brent prices climb past $82 a barrel, he said prices up to $90 would be a near-term possibility.
Some have said softening demand from trade tensions between the U.S. and China to offset loss of Iranian supply, but Tradition’s McGillian said that unless trade tensions show signs of eroding Chinese demand, oil prices will surge further.
U.S. commercial crude oil inventories are at their lowest since early 2015. While U.S. oil production is near a record high of 11 million bpd, subdued U.S. drilling points toward a slowdown in output.
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