Increased geopolitical tensions in the Middle East, plunging Venezuelan production, and now the U.S. withdrawal from the Iran nuclear deal could push Brent Crude prices to $82.50 a barrel by summer, Goldman Sachs said Wednesday.
On Tuesday, U.S. President Donald Trump said that the United States would withdraw from “an unacceptable Iran deal”, re-imposing sanctions on Tehran that “target critical sectors of Iran’s economy, such as its energy, petrochemical, and financial sectors.”
The U.S. will target Iran’s crude oil sales, and sanctions that were lifted under the deal will be re-imposed following a 180-day wind-down period, the U.S. Treasury said.
The return of the sanctions could initially reduce by 500,000 bpd Iran’s current crude oil production of 3.8 million bpd, Goldman Sachs said in a note today, as carried by Reuters.
A loss of 500,000 bpd of Iranian crude oil supply would push up oil prices by around $6.20 a barrel, according to Goldman Sachs.
“Such elevated oil geopolitical risks exacerbate the upside risks to Brent forecasts and reinforce our view that oil price volatility will continue to increase,” the investment bank’s analysts wrote.
At 11:20 a.m. EDT on Wednesday, both WTI and Brent prices were surging nearly 3 percent, with Brent touching $77 a barrel, following President Trump’s withdrawal from the Iran deal and EIA’s weekly inventory report showing draws across the board.
Commenting on the impact of the U.S. withdrawal from the Iran deal, Sukrit Vijayakar, director of energy consultancy Trifecta, told Reuters on Wednesday:
“Iran’s exports of oil to Asia and Europe will almost certainly decline later this year and into 2019 as some nations seek alternatives in order to avoid trouble with Washington and as sanctions start to bite.”
Several Asian refiners told Reuters that they were already on the lookout for alternatives to Iranian crude oil deliveries.
By Tsvetana Paraskova for Oilprice.com
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However, I disagree with Golden Sachs that Iran could lose some 500,000 barrels a day (b/d) initially as a result of US sanctions. Iran will not lose a single barrel of oil exports. More than 75% of Iran’s oil exports go to China and the Asia-Pacific region while the remaining 25% go mostly to the European Union (EU). China, India and other Asia-Pacific region countries as well as the EU are not going to comply with US sanctions and reduce their imports of Iranian crude.
While Japan and South Korea might comply with US sanctions and shun Iranian crude, this will be more than offset by China, India and other Asia-Pacific countries as well as the EU increasing their imports of Iranian crude.
I also disagree with Goldman Sachs that a loss of 500,000 b/d of Iran’s oil supply could push up oil prices by around $6.20 a barrel. Libya’s production declined by almost 1.2 million barrels a day (mbd) in 2011 and still oil prices did not rise then by more than $2-$3 a barrel. Goldman Sachs may argue that in 2011 there was no OPEC/non-OPEC production cut deal. And I will retort by saying that in 2018 US oil output is more than 10.5 mbd if claims by the EIA are to be believed.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Here we are a year later and US supplies are still at 434M barrels, a level not seen any time in history prior to 2015. There is no rational reason WTI is above $45, just market manipulation and collusion.