Expect a major oil price rally in November as a direct result of sanctions on Iran, not to mention a moribund Venezuelan oil production, and US oil reserves falling.
Oil markets are also watching Hurricane Florence offshore the United States, amid surging demand for gasoline and diesel, although crude output will not be affected on the storm’s current route, according to CNBC.
U.S. crude stocks fell by 8.6 million barrels in the week to Sept. 7 to 395.9 million, the American Petroleum Institute (API) said on Tuesday.
Said Reuters: “Oil cut earlier losses and rose towards its highest level this year on Wednesday, after a drop in U.S. crude inventories and as the prospect of the loss of Iranian supply added to concerns over the delicate balance between consumption and production.”
Brent crude futures traded at $79.20 a barrel while U.S. crude futures rose 61 cents to $69.86 a barrel.
Graph courtesy of OilPrice.com
“We think oil market fundamentals are increasingly supportive of crude prices, at least at current levels,” said Gordon Gray, HSBC’s global head of oil and gas equity research.
Iran in the middle of it
The Persian country will by November 4 see a slew of countries already abandoning oil supply contracts and the rest scrambling for alternatives as crushing US sanctions on Iran threaten to impose additional sanctions on those defying the ban on crude imports from the country.
OilPrice.com said South Korea has decided to comply with U.S. demands to cut oil imports from Iran to zero, becoming the first to do so out of the top three buyers.
“South Korea bought 194,000 bpd from Iran in July,” OilPrice said.
The Economic Times (ET), an Indian daily said Iran currently exports about 2 million barrels a day which is already 28% less than what they used to export in April.
“According to Bloomberg, in case the Iran sanctions come into place, oil price could go up to $150 a barrel,” reported ET.
Gordon Gray, HSBC’s global head of oil and gas equity research, told CNBC: “While we aren’t explicitly forecasting Brent to rise to $100 a barrel, we see real risks of this happening.”
The Wall Street Journal said OPEC’s total oil production climbed last month, in a sign the oil cartel is sticking with a decision to begin pumping out more barrels of crude this summer after more than a year of holding back output.
“Crude oil production in OPEC rose month-on-month by 278,000 barrels a day in August, to 32.57 million bpd in August,” the oil cartel said.
S&P global Platts said OPEC, in a report, indicated demand for the organization’s own crude oil in September will be almost 1 million bpd more than the level produced in August.
In 2018, demand for OPEC crude is expected at 32.91 million bpd, with demand for the second half to average 33.50 million bpd, the monthly market report showed.
“Going forward, economic uncertainty, and hence questions surrounding global oil demand, coupled with geopolitical tensions, will need to be factored into maintaining a balanced market in the months to come,” the report said.
“Saudi Arabia, OPEC’s largest producer, saw its output rise modestly to 10.40 million bpd, up 38,000 bpd from the previous month, according to secondary sources, S&P Platts reported.
“Second-largest producer Iraq boosted its output 90,000 bpd to 4.65 million bpd.”
A six-country monitoring committee overseeing the OPEC/non-OPEC supply accord will meet September 23 in Algiers to assess market fundamentals and potentially make output policy recommendations.
“World demand will average 98.82 million bpd in 2018, a demand growth of 1.62 million bpd,” said S&P.
Chinese media Xinhua said the U.S. Energy Information Administration (EIA) forecast on Tuesday that U.S. crude oil production will average 10.7 million bpd in 2018, up from 9.4 million barrels bpd in 2017, and will average 11.5 million barrels bpd in 2019.