Oil prices will rise on supply disruptions from Iran, but trade war concerns, slowing global oil demand growth, and a stronger U.S. dollar will keep a lid on prices so they are likely to end 2018 at the current price levels, according to 25 analysts polled by International Business Times / Newsweek on Friday.
At 09:58 a.m. EDT on Friday, WTI Crude was up 1.74 percent at $69.01, while Brent Crude traded up 1.73 percent at $76.39, on signs that Iran’s oil exports have started to drop off, although overall market sentiment was cautious as the U.S.-China trade dispute drags on.
Fifteen of the 25 analysts polled by International Business Times expect Iran’s sanctions to drive oil prices up, but some also warn that an escalating trade war and a stronger dollar, as well as slowing demand growth, could cap significant price gains.
The consensus forecast of the analysts expects Brent Crude at $73 a barrel at the end of 2018, and WTI Crude at $67 per barrel at the end of this year.
According to the latest monthly Reuters poll of 44 analysts and economists, WTI Crude prices are expected to average $67.32 per barrel this year, and hold steady and range-bound for the rest of 2018 and 2019, as increased supply from OPEC and the United States is expected to meet rising Asian demand and offset supply disruptions from Iran and elsewhere around the world.
In the latest monthly survey of investment banks by The Wall Street Journal, banks raised earlier this month their oil price forecasts for a tenth consecutive month, expecting Iranian supply losses and dropping inventories worldwide to boost prices. The nine banks surveyed expect Brent Crude to average $73.65 a barrel in 2018, while WTI Crude is now seen averaging just above $68 per barrel, with forecasts for both benchmarks raised by around $2 compared to the previous survey.
By Tsvetana Paraskova for Oilprice.com
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Contrary to analysts polled by International Business Times / Newsweek, I project that oil prices will go above $80 a barrel before the end of this year buoyed by the positive fundamentals of the global economy, namely a global economy growing at 3.9% this year and next compared with 3.5% last year, a rising global oil demand projected to add 1.5 million barrels a day (mbd) to global demand this year over last year and Chinese oil imports projected to top 10 mbd. Such fundamentals could easily support an oil price above $80.
And also contrary to the projections of the 25 analysts polled by International Business Times, US sanctions on ran are doomed to fail miserably and Iran will not lose a single barrel of its oil exports. Therefore, the impact on oil price will hardly be noticeable.
My reasoning is based on five market realities. The first is that the overwhelming majority of nations of the world including US allies and major buyers of Iranian crude are against the principle of sanctions on Iran as unfair and will not therefore comply with them and will continue to buy Iranian crude whether in violation of the sanctions or by a US waiver as would be the case with Japan, South Korea and Taiwan.
The second is the petro-yuan which has virtually nullified the effectiveness of US sanctions and provided an alternative way to bypass the sanctions and petrodollar.
A third reality is that China which is being subjected to intrusive US tariffs and Russia which has been battling US sanctions since 2014 will ensure the failure of US sanctions against Iran as a sort of retaliation against US tariffs and sanctions against them.
A fourth reality is that China can singlehandedly neutralize US sanctions by deciding to buy the entire Iranian oil exports amounting to 2.5 mbd as a retaliation against escalating US trade war against it and paying for them in petrodollar.
A fifth reality is that 95% of Iran’s oil exports go to countries who declared that they will not comply by US sanctions, namely China (35%), India (33%), the European Union (20%) and Turkey (7%). The remaining 5% of Iran’s oil exports goes to South Korea and Japan who have already said they will apply for a US waiver and most probably they will get.
Moreover, the escalating trade war between the US and China will hardly impact on oil prices. If intrusive US tariffs make it difficult for China to export its good to the US, China could easily switch to other markets around the globe. China’s economy is far more integrated in the global trade system than the US economy and also bigger by 24%. However, the US could pay a heavy price if it tries to replace Chinese exports with imports from other countries. No other country in the world could produce goods particularly high tech goods cheaper than China. Replacing Chinese exports will lead to higher prices for US customers and also higher inflation in the United States. This will definitely offset any benefits from the tax cuts, worsen US budget deficit and increase US outstanding debts by an estimated 2.35%. Furthermore, China’s purchases of US shale/tight oil and LNG could come to an end. These will be easily and happily replaced by Iranian crude and Russian LNG respectively.
Still, China’s economy will continue to import crude oil in vast quantities to keep its economy well-oiled and functioning.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London