Oil Prices Face Upward Pressure From Falling Iranian Exports: IBT Poll

Oil prices are expected to rise marginally in the fourth quarter of 2018 from their current levels as sanctions on Iran will continue to lend support, a poll by International Business Times shows. But global analysts see little short-term impact on crude prices from the tensions between the United States and Saudi Arabia over the killing of journalist Jamal Khashoggi in Turkey.

Fourteen analysts expect Brent crude at $82 per barrel by the end of the fourth quarter in 2018, while WTI crude, the U.S. standard, is expected to close at $71 per barrel. The forecasts are higher from a previous poll by IBT in August, where analysts saw Brent crude at $73 a barrel and WTI crude at $67 at the end of 2018.

On Wednesday, Brent crude was last trading at $76.77, while WTI was last quoted at $66.61. Brent crude prices are already up about 15 percent so far this year.

In a note seen by IBT, ING said falling Iranian exports have been the key driver for crude oil prices, while the lack of action from Organization of Petroleum Exporting Countries (OPEC) to counter falling Iranian supply has added to the bullish sentiment. “As a result of this, we expect prices to remain well supported for the rest of the year,” ING said.

Iran exported over 2.1 million barrels per day in 2017. Falling the renewal of U.S. sanctions, however, refiners from Europe, South Korea, Japan and India have already cut their purchases from Iran, and exports have fallen by 900 million barrels per day in the last five months. Also, production in Venezuela has fallen by more than a third from its 2016 level.

In its note, ING said it expects a significant decline in Iran’s oil production but said that large declines have taken place even before the sanctions come into force. Further downside risk to Iran's production is likely post November. ING expects the markets to remain in deficit over the fourth quarter.

Bank of America analysts think a growing economy and robust growth in demand limit the ability of other OPEC members and Russia to curtail the rise in oil prices by increasing production.

“Indeed, suppliers are already having trouble keeping up with the demand and OECD inventories have been steadily falling. Higher oil prices seem inevitable and, in our view, $100/bbl is easily within reach,” Bank of America said in its note. BofA has revised up its forecasts of Brent to peak at $95/bbl by the end of second quarter in 2019.

Oxford Economics said “markets have become concerned again that oil price rises have further to run, as the impact of U.S. sanctions on Iran bites and is exacerbated by supply problems elsewhere and a reluctance by OPEC to fill the gap.” But it expects crude prices to ease back to average $77 per barrel in 2019.

Deloitte thinks that oil markets will find a balance once production out of the U.S. picks up. “The recent run-up in oil prices is because of geopolitical concerns and that will subside; production out of the U.S. will pick up and that will likely balance the market,” Jonathan Listoe, manager, resource evaluation & advisory at Deloitte, said.

Western Countries Will Not Rock The Boat Over Khashoggi

Analysts think that growing tensions between the U.S. and Saudi Arabia over the killing of journalist Jamal Khashoggi in Turkey has little impact on short-term oil prices.

Luc Vallée, chief strategist at Laurentian Bank Securities, expects the status quo to continue and a stable oil market with WTI at $67 and Brent at $75 for the ongoing quarter. Vallée said, “Saudi Arabia can’t afford politically to cut production to increase revenue/punish Western consumers. Lowering prices by increasing production would please Donald Trump but would cost Saudi and other producing countries too much.”

Investors had interpreted the Kingdom’s statement last week — it threatened retaliation if other countries took action against in response to Khashoggi's killing — as a warning that it may use oil as a political weapon if punished over the disappearance of Khashoggi, breaking away from their decade-old policy of petroleum above politics. But Saudi Energy Minister Khalid al-Falih later assured markets that the country would play a “constructive and responsible role” in world energy markets.

“The tensions pertaining to the Jamal Khashoggi case are unlikely to see sanctions imposed on Saudi Arabia,” said Henry Kouam, economist at Continuum Economics. “With Iran sanctions around the corner, Western allies are unlikely to rock the boat further. For all the fears/expectations of oil to reach $100/bl, oil-related sanctions will, most certainly, see this come to fruition. Western allies have little appetite for additional global headwinds.”

In a note, Wells Fargo said while there is clearly the potential for some short-term disruption, the potential for a sustained price increase could be mitigated to some extent depending on whether Saudi Arabia gains the cooperation and support of its OPEC partners, as well as Russia.