In a Q&A with AMEinfo, Hussein Sayed, Chief Market Strategist at FXTM, brings you the latest on oil price movements, the factors behind them and future expectations as the US Nov. 4 sanctions deadline nears.
Q1: Are oil markets jittery as the Nov 4 deadline approaches?
A: “Oil traders have been pricing the looming sanctions on Iran for a couple of months. Since mid-August alone, Brent crude has surged more than 20% as we approach the Nov 4 deadline. The question of what will happen to oil prices next is difficult to answer as it depends on the effectiveness of the imposed sanction. However, we expect to see even more volatility in the days ahead.”
Q2: Is the US showing leniency with some Iranian oil importers? With whom and why?
A: “The U.S. wants Iran’s oil exports to drop to zero, however, this is easier said than done given the current tightness in the global oil markets. Waivers are only to be considered for countries willing to reduce their exports significantly. I think this will be on a case by case, and India’s announcement that it will buy 9 million barrels of Iranian oil in November shows some U.S. leniency towards Iranian oil importers.”
Q3: Can Saudi/OPEC and non-Opec states like Russia and the US compensate for the loss of Iranian exports?
A: “This depends on how much Iranian oil will be off the markets after November 4. If Iranian exports declined by a range of 1 – 1.5 million barrels, this amount can be picked up by the big players. This doesn’t necessarily mean prices will fall dramatically because it will be difficult to maintain enough in reserves to meet any further shortfall.”
Q4: Are markets still wary from any potential closures of straits in the area?
A: “Traders do not seem to be pricing this risk yet, otherwise prices should be trading above $100 dollars by now.”
Q5: Can we predict where prices are going to be at the Nov 4 sanctions deadline and beyond?
A: “This remains a wild guess. We need to know which countries decide to comply completely with the U.S. sanctions. Will the Chinese commit to increasing their imports from Iran? Tanker-tracking data will become less reliable, as Iran seems to be switching off tracking devices on tankers, thus becoming difficult to track the real amounts of oil exported by Iran. However, I think the upside is limited from current levels.”
Q6: Is there declining demand due to rising oil prices or other criteria?
A: “Oil demand is inelastic, at least in the short run. However, there’re many red flags surrounding the global economy. The IMF this week has cut its global growth forecast for this year and next. Emerging markets, which are key to oil demand saw larger cuts to their growth forecast with signs of lower future investments and manufacturing. Even when looking from a broader perspective, the global economic expansion seems to be in its mature phase and it’s only a matter of time before the downturn begins. So, there are many signs that oil demand will begin to wane irrespective of price levels, which will eventually bring prices lower.”
Q7: Iran aside, what is or who are behind key price/demand/supply drivers at this junction in 2018?
A: “Iran will remain the top driver to prices for the final quarter of 2018. But traders should keep an eye on problems in Venezuela and Libya as further shortage from these countries will also influence prices. Demand shouldn’t be a big worry at the current stage, but will be a key issue next year.”