There is a lot of speculation surrounding oil prices, and lots more countries hedging plans on Brent surpassing the $80 mark in 2018.
This is far higher than most estimates made in 2017 and early 2018, which hovered around best case scenarios of $60-$65, and $50 for worst case.
Brent just crossed the $72 level today, but even at $71 some 24 hours earlier, “…improving oil prices are helping sentiment” JP Morgan had stated.
What are the reasons behind these sentiments and what’s driving the prices of Brent and West Texas Intermediate (WTI)?
Oil markets sit in anticipation of an $80 a barrel for Brent when or if US President Trump re-imposes sanctions on Iran by the May 12 deadline.
Daman Investments Head of Asset Management Ali Adou told Bloomberg that lots of factors including an OPEC and Non-OPEC deal to cut 1.8 million oil barrels out of production till end 2018, have had a positive effect on oil prices.
This is despite the fact that U.S. oil production is expected to rise by another 125,000 bpd in May, compared to a month earlier, according to Oilprice.com, a prominent industry site.
“Oil prices rose sharply last week in anticipation of U.S. airstrikes in Syria and although Syria is only a marginal producer of oil, the fear was that the U.S. would get sucked into a broader conflict if it sparked retaliation from Russia or Iran,” said Oilprice.com.
“With only a narrow action taken by Washington, the threat of wider conflict abated. Oil fell to $71.87 (down 1% from Friday close, while WTI was down 0.85% to $66.82) on the news. But in early trading on Tuesday, oil held steady in anticipation of inventory drawdowns and comments from OPEC about a possible extension.”
Oil prices firmed up after Kuwait said that OPEC would consider extending the production cuts into 2019 as reported by Bloomberg.
OilPrice.com quoted the Wall Street Journal reporting that several European nations are considering support for new sanctions on Iran as a way to entice the U.S. to remain in the Iran nuclear deal.
Up, up and away
According to CNBC quoting Reuters, oil prices rose on Wednesday, lifted by a reported decline in U.S. crude inventories and by the ongoing risk of supply disruptions.
Disruptions mentioned includde a potentially spreading conflict in the Middle East, renewed U.S. sanctions against Iran and falling output as a result of political and economic crisis in Venezuela.
Brent crude oil futures were at $72.07 per barrel up 49 cents, or 0.7% from their last close.
U.S. West Texas Intermediate (WTI) crude futures were also proportionally up to $67.01 a barrel.
“In the US, crude inventories fell by 1 million barrels last week, to 428 million barrels, according to a weekly report by the American Petroleum Institute (API) on Tuesday,” said CNBC.
Dutch bank ING said in a note to clients that Brent had risen back above $70 per barrel in April “due to geopolitical risks along with some fundamentally bullish developments in the market.”
Forbes said the$80 mark will be reached based on 3 additional indicators
1-The Saudis want $80 Brent
Bloomberg reported last Saudi has been meeting with other OPEC nations, and key influencers to signal the Kingdom’s desire to move the Brent crude price up into the $80/bbl range. That would equate to a WTI price per barrel of about $75.
2-The global oil market is nearing balance – The International Energy Agency (IEA) announced on April 12 that crude oil inventories will fall below the rolling 5-year average in the next 2-3 months , signaling a re-balancing of global supply and demand, and the end of the supply glut that caused the price to collapse in 2014.
3-Global demand for crude oil remains strong – In its April forecast, the U.S. Energy Information Administration (EIA) raised its projection for global demand growth to 1.85 million bpd.