Trump to loom large as fears spur $80 oil
singapore — This year may be anything but staid for the oil market as Citigroup Inc predicts wildcards including war, Middle East tensions, Donald Trump and Kim Jong Un driving crude towards $80 a barrel.
After prices were boosted by Opec’s output curbs in 2017, the US president has shifted the focus to geopolitical risks, with his pursuit of sanctions on Iran and North Korea potentially having significant consequences, the bank said.
That’s in addition to political disturbances in some Opec members like Iraq and Libya that could see crude supplies decline, boosting oil to levels between $70-$80, it said in a January 9 report.
“Many of these uncertainties have significant consequences for commodities,” Citigroup analysts including Ed Morse wrote in the report titled Wildcards for 2018: Trump looms large along with systemic risks. “It is not a surprise that our list of potential wildcard events in the year ahead retains a focus on the United States.”
The decision by the Organisation of the Petroleum Exporting Countries and its allies including Russia to curb production and drain a global glut helped oil rally for a second year in 2017.
From a market-fundamentals perspective, investors are now watching to see whether the US continues to expand its output, a threat which has rocked the oil industry in the past few years.
However, the most wide-ranging systemic risk to commodities this year could be President Trump disturbing the political world order, Citigroup said. Brent crude, the benchmark for half of the world’s oil, traded at an average price of $54.75 a barrel last year. Frontmonth futures were at $69.05 while US benchmark West Texas Intermediate crude traded at $63.38 as of 10:09am London time on Wednesday.
Re-imposing of US sanctions on Iran, the third-biggest Opec producer, is likely to dislocate at least 500,000 barrels of the Middle Eastern nation’s oil exports, resulting in a $5 price increase to oil, the bank said. Hard liners in the Islamic Republic may also seek to break a nuclear agreement with global powers including the US, while Congress may consider new sanctions against the Mideast producer, Citigroup said. — Bloomberg