Oil Prices To Stay Stable In 2018 Despite Iran Sanctions: IBT Poll

Fears of a supply disruption from the upcoming Iran sanctions can put an upward pressure on crude oil prices, analysts say, but they widely expect prices to end 2018 largely where they are now because of weak global demand, a stronger dollar and worries about a trade war. The escalating trade spat between the U.S. and China have weighed on commodity markets recently. WTI steadied at $67.83 per barrel Thursday and Brent was being quoted at $74.73 per barrel.

Fifteen of the 25 analysts polled by International Business Times / Newsweek expect the renewed U.S. sanctions on Iran to put upward pressure on oil prices in 2018. Three expect the prices to remain unchanged, and seven provided no comment. The consensus forecast for Brent crude, the global benchmark, at end-2018 is $73 per barrel and $67 for WTI crude, the U.S. standard.

“We expect the impact of sanctions against Iran to have a bigger effect in 2019 when trade war fears prove to be unjustified and supply constraints start to bite and affect investors’ sentiment,” says Hans van Cleef, senior energy economist at ABN Amro.

President Donald Trump withdrew the United States from the Iran nuclear deal that went into effect in January 2016 and re-imposed sanctions on the country. According to the U.S. Department of Treasury website, some sanctions take effect after Aug. 6, while others — including those targeting the country’s petroleum sector — come into force Nov. 4.

Iranian oil accounts for about 4.8 percent of the global crude oil exports and Yung-Yu Ma, the chief investment strategist at BMO Wealth Management, expects the sanctions on Iran to cause a “meaningful” decline in exports.

“The extent to which the trade war continues or escalates (or possibly moderates) will also affect oil prices as trade war escalation would be negative for global growth,” he added.

To bridge the gap in supply from Venezuela and Iran, Saudi Arabia said OPEC and Russia could increase oil production to the world markets in the near future.

Hugh Johnson, chief investment officer at Hugh Johnson Advisors, says “there should be no loss since other producers should make up for the loss by increasing production just as was the case in 2011 through 2014. Hence, I would expect that [WTI] prices will remain near current levels or decline toward $65 per barrel.”

Data from OPEC shows Venezuela crude oil production dropped to about 1.47 million barrels per day in July, a decline of about 17 percent so far this year.

Henri Kouam, economist at Continuum Economics, thinks Iran’s main export markets -- China, India and Turkey -- will likely maintain purchase and this could prevent substantial loss to global crude inventories, while South Korea and Japan may likely seek waivers than zero-out purchases.

Kouam added: “More notably, with Iran discounting its oil by up to $1, a disincentive to adhere to U.S. sanction emerges, and, more strongly, one would argue. Indeed, rallies are not unlikely in the $70-$75 range [for WTI], but OPEC and Russia stand ready to ramp up production in an effort to stave off a sustained rally.”

However, Gary Hufbauer, senior fellow at Peterson Institute of International Economics, remains skeptical about Saudi Arabia and Russia making up any possible shortfall. He expects the Iran sanctions to wipe out 1.5 million barrels per day. BBVA forecasts Iranian exports to fall by 540,000 barrels per day and Econoclast sees a reduction of 500,000 barrels per day.

Ricard Torné, head of economic research at Focus Economics, thinks there could be a “full-blown conflict” between Iran and the U.S. and its regional allies if Iran carries out its threat to close the Strait of Hormuz. Closing the strait will dramatically reduce global oil shipments as about 35 percent of seaborne global oil exports pass through it.

Still, some analysts say a stronger dollar, slowing global demand and increasing oil supplies in the U.S. will help keep a lid on WTI crude prices. Scott Anderson, chief economist at Bank of the West Economics, expects Brent prices to remain relatively higher than WTI, which will widen the spread between the two. “WTI and Brent spread will widen from current levels as the Iran sanctions affect the rest of the world more seriously,” he said.