(Montel) Oil prices were little changed early on Friday – with Brent trading below its four-year high reached earlier this week – as investors remained cautious about new US sanctions due to hit Iran’s oil industry from early November.
On Tuesday, Brent reached its highest since 2014, of USD 82.55/bbl, following reports that some major consumers are ready to stop purchasing Iranian oil and that Opec and its allies will not increase output to fill the gap.
“Now the market estimates supply losses due to Iran sanctions at 1.5m bbl/day, which is unlikely to be offset by other suppliers,” said analysts ANZ bank in a note.
“All the major European players have talked about stopping to buy Iranian crude,” Giacomo Romeo, senior research analyst for oil and gas at Macquarie, told Montel’s Austrian Energy Day in Vienna on Thursday.
He pointed out that while India would likely follow suit, China would likely remain a key buyer. Still, he said oil prices could reach USD 100/bbl this year if Opec failed to produce more to compensate for the loss from Iran.
Last weekend, officials from Opec and its allies suggested they would maintain their ongoing production cuts of 1.8m bbl/day until the end of the year, as planned, and despite increased pressure from US president Donald Trump to lift output.
“The Trump administration has stated that global oil producers will have to moderate oil supply and it has yet to consider for a release from the US emergency stockpile to offset rising oil prices,” said analysts at Phillip Futures in an overnight note.
Market participants are assessing whether Washington will release its strategic oil reserves to help bring down prices, particularly as US congressional elections are two days after the new sanctions on Iran are due to come into force.
Analysts at Commerzbank attributed this week’s gains in oil prices in part to comments from the US energy secretary, Rick Perry, who rejected the idea of releasing strategic oil reserves and said that major oil producers should increase supply instead.
“Assuming that the shortfall in supply from Iran drives Opec production down from 32.6m bbl/day now to 31.8m bbl/day, the supply gap based on the IEA [International Energy Agency] estimate would total [around] 1m bbl/day in the fourth quarter.
“This could be offset by releasing 90m barrels from the strategic reserves. The IEA estimates that the call on Opec will fall to an average of 31.5m bbl/day in the first half of 2019 due to seasonally weaker demand. Hence, Opec production could decrease to this level next year without the need for any compensatory measures,” Commerzbank added in a research note on Thursday.