Oil price could hit $US100 amid crisis over Iran, Venezuela

ALEX RALPH
May 11, 2018
The Times

Oil prices could rise to $US100 a barrel, an American broker has forecast, amid the prospect of renewed sanctions on Iran. 

Bank of America Merrill Lynch raised its average forecast for Brent crude, the international benchmark, for this year and next to $US70 a barrel and $US75 a barrel respectively but said the price could hit $US100.

Oil prices have risen after President Donald Trump pulled the US out of the international nuclear deal with Iran and reignited tensions in the Middle East.

Brent crude rose to $US78 a barrel yesterday, its highest level since November 2014, on expectations of disruption to oil supplies from Iran, before easing back as investors booked profits.

The oil price is on course for its fourth consecutive quarterly gain, which would be the longest run for more than a decade. It traded below $US30 a barrel in early 2016 amid a supply glut, but rebounded after OPEC and non-members agreed to cut supplies later that year to boost prices. 

Analysts at Bank of America Merrill Lynch said they expected global oil supply and demand balances to tighten over the next 18 months, “driven by the ongoing collapse in Venezuelan output”. The country is mired in an economic crisis.

“In addition, there are downside risks to Iranian crude oil exports. Plus we see a high likelihood of OPEC working with Russia in 2019 to set a floor on oil prices,” the broker said.

It forecast an oil market deficit of 630,000 barrels a day this year and 300,000 in 2019.

Fitch, the credit rating agency, said yesterday that the US withdrawal from the Iran nuclear deal would further increase geopolitical risk in the region but the impact on oil prices would depend on the response from OPEC and other producers, such as the US itself.

Reports yesterday suggested that OPEC was in no rush to pump more oil into the market to plug the potential gap from Iran.

Iran re-emerged as a significant oil exporter in 2016 after international sanctions were lifted and exported 2.6 million barrels a day last month, making it the third biggest exporter of crude in OPEC. Oil ministers from OPEC are due to meet in Vienna next month to discuss the supply agreement.

The rebound in oil prices has also boosted producers and explorers, with shares in BP and Royal Dutch Shell up by almost 8 per cent this year.