The heads of the world’s top oil trading houses are unanimous that Iranian sanctions will remove a large chunk of oil from the market, more than initially expected, but they have very diverging opinions on where oil prices are headed for the rest of the year and in 2019.
At the Oil & Money conference in London this week, the top executives of Vitol, Trafigura, Gunvor, and Glencore predicted the price of oil next year at between $65 and $100 a barrel due to a combination of many other factors apart from the U.S. sanctions on Iran—highlighting the uncertainty in the oil market about where prices are heading.
Vitol Group chairman Ian Taylor is the most bearish among the top oil traders, seeing Brent Crude at $65 a barrel next year, while Trafigura’s chief executive Jeremy Weir is the most bullish and says he wouldn’t be surprised to see oil hitting $100 per barrel by the end of next year.
Speaking to Bloomberg on the sidelines of the London conference, Vitol’s Taylor said that “Physically, we don’t have a supply squeeze. There’s plenty of oil around.”
The Saudis are right when they say that they’ve got enough oil to supply everybody who wants it, so what we have in the market is a little bit more of a “fear factor,” Taylor said.
“To my mind, we don’t really have a supply squeeze at all,” Taylor told Bloomberg. Related: EIA: Market Tightens As Outages From Iran, Venezuela Pile Up
Asked about where Brent Crude prices will be on January 1, 2019, Taylor said he wouldn’t be surprised to see it $5-10 below current levels, because the season when the market won’t need so much crude oil is coming.
Iranian crude oil exports will be much reduced, and if they stay above 1 million bpd, “we’ll be much surprised,” Taylor said.
Vitol’s chairman expects that the United States could issue a few waivers, but not many.
OPEC are beginning to try to produce whatever they can, Taylor said, adding that this view is part of his prediction that oil prices are heading down.
The other big factor in Vitol chairman’s bearish forecast is that “no doubt about it—we’re going to see demand destruction, sadly.” Emerging markets are really struggling with higher oil prices coupled with currency depreciation, so there will be slightly less demand going forward, according to Taylor.
Vitol has just reduced its oil demand growth forecast for this year from about 1.6 million bpd to about 1.35 million bpd, he said.
Trafigura’s Weir, for his part, is at the other end of the expected oil price range.
“I’m pretty bullish. In the short term we’ve already got the stars aligned here. Consumption is still increasing . . . Iran is there, so it’s looking quite positive into year end before even talking about the speculative influence which tends to make things overshoot,” the Financial Times quoted Weir as telling the London conference.
“I wouldn’t be surprised to see three figures on oil,” Weir said.
Alex Beard, chief executive Oil & Gas at Glencore, is also in the bullish corner with Weir and expects prices to be well supported.
“Sanctions will be extremely tough. I don’t see many wavers ... I think the real reason is regime change,” Beard told the London conference.
Related: Prices Soar As Natural Gas Inventories Hit Decade Low
Beard doesn’t see “any chance” that the European Union’s payment mechanism to keep trade with Iran could work.
“I can’t see anything that will affect oil prices dramatically to the downside,” Beard said, as quoted by Reuters, expecting oil prices at $85-$90 in the medium term.
Gunvor’s chief executive Torbjörn Törnqvist is in Vitol’s bearish corner, seeing lower Brent prices next year—$70-75—although not as low as Taylor’s $65 forecast. Slowing oil demand growth, a well-supplied market, and overstated fears that Saudi Arabia can’t make up for the Iranian shortfall are Törnqvist’s reasons to expect oil prices to drop from current levels.
Sanctions on Iran will be a big disruption in the oil market, leading oil traders concur, but their oil price predictions vary so widely that they are only highlighting the current mood in the market—uncertainty.
By Tsvetana Paraskova for Oilprice.com
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One reality is that the overwhelming majority of nations of the world with the possible exception of Saudi Arabia and Israel are against US sanctions on Iran as unfair as Iran has not violated any of the clauses of the nuclear deal and will not therefore comply with them.
A second reality is the petro-yuan which has nullified US sanctions and enabled Iran to bypass the sanctions and the petrodollar altogether.
A third reality is that China singlehandedly could nullify US sanctions by buying the entire Iranian crude oil exports amounting to 2.215 million barrels a day (mbd) and paying for them in petro-yuan.
A fourth reality is that China and Russia which are being subjected to intrusive US tariffs and sanctions respectively will ensure the failure of US sanctions against Iran.
The last reality is that 95% of Iranian oil exports go to China (35%), India (33%), the European Union (20%) and Turkey (7%) and all of them announced that they will not comply with the sanctions. The remaining 5% goes to Japan and South Korea and both said they will apply for a US waiver and they will get it.
I will prove these trading houses and experts wrong as I have proven them wrong before over the IPO of Saudi Aramco. For ten months they kept insisting that the IPO will go ahead and for ten months I kept repeatedly telling them that it will be withdrawn because of the risk of US litigation and question marks over Saudi proven reserves. Three weeks ago King Salman of Saudi Arabia called the IPO off justifying his decision by saying he didn’t want Saudi Aramco to be forced to declare its finances or oil reserves exactly what I have been saying for more than 10 months. Now the IPO is dead and buried and will never to be resurrected.
As for oil prices, if the current robust fundamentals continue into 2019, oil prices could end the year at $85 a barrel rising in 2019 to $100.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London