Oil rises as Iran sanctions create worry about supply shortfall
Jefferies bank warns of record low spare capacity with analysts expecting Iranian exports to drop by about 1-million bbl./daily
Oil prices crept back towards four-year highs on Friday as traders anticipated a tighter market due to US sanctions on Iran’s crude exports.
Benchmark Brent crude oil was up 10c a barrel at $84.68. On Thursday 04 Oct, Brent fell by $1.34 a barrel or 1.6%. The contract is on course for a gain of about 2.5% for the week. US light crude was up 30c at $74.63, a gain of more than 2% in a week.
“The market mood is exceptionally bullish, with fears growing that the US demands for an Iran oil embargo could cause a significant supply shortfall,” said Norbert Rücker, head of macro- and commodity research at Julius Bär.
Both benchmarks retreated on Thursday following a rise in US oil inventories and after Saudi Arabia and Russia said they would raise output to at least partly make up for expected disruptions from Iran, which is oil cartel Opec’s third-largest producer.
But the pull-back did little to dent a rise of 15% to 20% in oil prices since mid-August, pushing them to their highest since 2014.
Washington wants governments and companies around the world to stop buying Iranian oil from November 4 to put pressure on Tehran to renegotiate a nuclear deal.
Many analysts say they expect Iranian exports to drop by about 1-million barrels per day ( bpd). “Iranian exports could fall below 1-million bpd in November,” US bank Jefferies said. “It now appears that only China and Turkey may be willing to risk US retaliation by transacting with Iran.”
The investment bank said there was enough oil to meet demand, but “global spare capacity is dwindling to the lowest level that we can document”.
Speculators have accumulated bullish long positions betting on a further rise in prices amounting to almost 1.2-billion barrels of oil. But Goldman Sachs says the upwards trend may not last.
“While upside price risks will prevail for now, fundamental data outside of Iran has not turned bullish in our view,” Goldman said in a note to clients.
“We expect fundamentals to gradually become binding by early 2019 as new spare capacity comes online ... pointing to the global market eventually returning to a modest surplus in early 2019.”