Rate hike to push GCC costs of borrowing
Most GCC central banks raised interest rates with effect from yesterday following a 0.25% rise in interest rates by the US Federal Reserve. The Fed rate hike was widely anticipated in the context of improved US data | il prices edged higher yesterday, driven by the prospect of a shortfall in global supply once US sanctions against major crude exporter Iran come into force in just five weeks’ time.
“On paper, you could argue that the technical and fundamental perspective points to higher prices, so I think that will carry on into next week and further out,” Saxo Bank senior manager Ole Hansen said. “$100 (Dh367) barrel, I am struggling to see that.
“Already at $80, we are seeing emerging market local oil prices pretty close to where we peaked a few years ago ... the race to protect consumers from further price rises from here could potentially impact demand growth sooner than would otherwise have been expected.”
Estimates of how much Iranian crude could disappear from the market once US sanctions come into force on November 4 vary widely among the analyst community, from anywhere from 500,000 barrels per day (bpd) all the way to 2 million bpd.
Filling up shortfall
At its 2018 peak in May, Iran exported 2.71 million bpd of crude oil, equivalent to nearly 3 per cent of daily global consumption. ■
“We view that crude market risks are heavily skewed to the upside and whilst we are not explicitly forecasting Brent to rise to $100 per barrel, we see material risks of this coming to fruition,” Japanese bank Mitsubishi UFJ Financial Group said in a note to clients. Meanwhile, Saudi Arabia will quietly add extra oil to the market over the next couple of months to offset a drop in Iranian production, but is worried it might need to limit output next year to balance global supply and demand as US pumps more crude.
US crude production hit a record 11.1 million bpd in the week ending September 21, according to data from the Energy Information Administration.
bpd of crude oil exported by Iran in May 2018
current average price of global crude per barrel