Oil to rise as Iran sanctions outweigh demand risks from trade wars

Traders are worried oil storage tanks are about to empty on reduced Iranian supplies. (Reuters)
Updated 28 September 2018

Oil to rise as Iran sanctions outweigh demand risks from trade wars

  • Highest forecast for 2018, 2019 Brent prices this year
  • Shale growth could be limited by infrastructure problems

LONDON: Oil prices are likely to climb continuously into next year, as concerns over drops in supply from the likes of Iran and Venezuela outweigh any worry that global trade disputes could undermine demand, a Reuters poll showed on Friday.
A survey of 50 economists and analysts forecast Brent crude to average $73.48 a barrel in 2018, up from the $72.71 forecast in August and the $72.68 average so far this year. Brent was forecast to average $73.75 in 2019.
This is the highest projection for the benchmark for both 2018 and 2019 in the polls this year.
“Concerns over global trade disputes have not yet really affected economic growth, but the sanctions on Iran already have had an impact on Iranian exports and output,” said Frank Schallenberger, head of commodity research at LBBW.
“If an export destination like South Korea is not willing to buy Iranian oil anymore, there is a high probability that output from Iran could drop some 500,000-1 million bpd. This is really bad news for the supply side — and especially also for the consumers — as prices could go up even further.”
Iranian exports of crude and condensates have declined by 0.8 million barrels a day (mbd) from April to September, according to the Institute of International Finance, ahead of the Nov. 4 US sanctions on the third largest producer in OPEC.
Brent prices have risen more than 20 percent since the beginning of April.
Analysts expect a reduction of anywhere between 500,000 and 1.5 million bpd in Iranian supply due to the sanctions, with most expecting Saudi Arabia to take the lead in filling any supply gaps.
“The best is yet to come with a fourth-quarter of $80-plus per barrel driven by still strong oil demand growth, expectation of a significant drop in Iranian exports to 1 mbd by year-end and an only limited willingness by OPEC to ramp-up output to exhaust spare capacity,” said Jan Edelmann, commodities analyst at HSH Nordbank.
However, an escalating trade dispute between the US and China, the world’s largest consumer of commodities, could affect demand growth, especially next year, analysts said.
“Uncertainty about possible effects of a trade war between the US and China could dampen some of the upside risks triggered by the supply issues,” said Hans van Cleef, senior energy economist at ABN Amro.
Meanwhile, US crude futures were forecast to average $67.29 a barrel in 2018, compared with the $67.13 consensus last month and an average of $66.76 until now.
A majority of participants saw growth in US shale oil output slowing over the remainder of 2018 and into next year due to infrastructure problems.

US-Saudi business council reports $13bn in contracts

Updated 24 May 2019

US-Saudi business council reports $13bn in contracts

  • Improved oil prices, combined with a government focus on spending, contributed to the rise, the council said

LONDON: The value of joint Saudi-US contracts rose to $13 billion in the first quarter of 2019, according to a business council report.

That marked the highest value of awarded contracts since the first quarter of 2015, the US-Saudi Arabian Business Council said.

The value of contracts awarded during the first quarter amounted to about half of the total value in all of last year, it added.

The contracts “included many vital projects, notably in the oil, gas, water and transport sectors,” Abdallah Jum’ah, the co-chair of the council, was reported as saying by Asharq Al-Awsat.

Energy was the top sector, with $3.1 billion of the value of contracts awarded, with many struck by Saudi Aramco. 

Improved oil prices, combined with a government focus on spending, contributed to the rise, the council said.

The construction sector also looks set for a recovery after many projects were put on hold due to the oil-price crash.

“If the pace of awarding construction contracts witnessed during the first quarter of 2019 continues for the rest of the year, the index of awarding construction contracts may return to the range we witnessed before the canceling and postponing of mega projects due to lower oil revenue,” the council said.