Brent Crude prices could reach $75 a barrel in the third quarter this year as the oil market will likely swing into a deficit, due to OPEC’s production cuts and U.S. sanctions on Iranian and Venezuelan oil, according to Morgan Stanley.
Early on Wednesday at 08:16 a.m. EDT, Brent Crude was trading just above $67 a barrel, down 0.49 percent on the day, while WTI Crude was down 1 percent at $58.70, before the weekly inventory report from the EIA.
Morgan Stanley’s view that oil prices will rise as the year progresses is underpinned by its assumption that in June OPEC will roll over the production cuts or even deepen them as the cartel appears ready to do whatever it takes to clear the current oversupply, CNBC quoted Morgan Stanley global oil strategists Martijn Rats and Amy Sergeant as writing in a research note this week.
“Conversations with several OPEC officials left us with the impression that Brent in the mid-$60s is not where the cartel would like to see it,” the investment bank’s analysts said after meeting with industry representatives at the CERAWeek energy conference last week.
Adding to OPEC’s willingness to clear the oversupply, the U.S. sanctions on Venezuela and expected fewer waiver extensions for Iranian oil customers once the current ones expire in early May will also push oil prices higher, according to Morgan Stanley.
The bank believes that the U.S. Administration will not go for ‘zero’ Iranian waivers, and will likely instead extend the exemptions for Iran’s biggest oil customers China and India, plus Turkey, but the total allowed volumes would be 900,000 bpd-1 million bpd, down from 1.2 million bpd in the first waivers.
In Venezuela, the blackout from earlier this month and the U.S. sanctions may have cut current oil production to 600,000 bpd-700,000 bpd, Morgan Stanley says, citing figures from Schlumberger.
OPEC’s resolve to do whatever it takes and the sanctions on Venezuela and Iran could tip the oil market into a 500,000-bpd deficit in Q2 and 800,000-bpd shortage in Q3, CNBC quoted Morgan Stanley as saying.
In January this year, Morgan Stanley expected supply and demand largely in balance throughout 2019, expecting Brent in the mid-$60s.
By Tsvetana Paraskova for Oilprice.com
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Oil prices are headed beyond $80 this year buoyed by very bullish influences including a growing global economy, a rising global oil demand adding 1.55 million barrels of oil a day (mbd) to over 2018, positive indications of an imminent settlement of the US trade war with China and China’s insatiable thirst for oil with its imports projected to hit 11 mbd this year.
Moreover, OPEC+ cuts and a strict adherence by OPEC members to the cuts and also Saudi Arabia’s steep cutting of its production and exports will most probably reb-alance the global oil market by the end of the second quarter. If this didn’t happen by then, there is the possibility that the cuts could be extended until the end of the year or until the global oil market has become irrevocably balanced.
One bearish element, however, is at play in the global oil market, namely the failure of US sanctions to cost Iran even the loss of a single barrel of oil. That is why the Trump administration has no alternative but to renew the sanction waivers it issued last year to the eight biggest buyers of Iranian crude when they expire in May or issue new ones for no other reason than to use them as a fig leaf to mask the fact that US sanctions are doomed to fail and also the fact that the zero exports option is a bridge too far.
US sanctions have only knocked off 500,000 barrels of oil a day (b/d) which Venezuela used to export to the US but these exports have been redirected to India, Turkey and the EU so there is no loss of supply in the market.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
The question is how long they can maintain high price ? History runs in cricles. Harder they will push the price up, harder it will crash. Now it can be even worse than before. EVs getting better, cheaper and more popular, US shale growing in power.
Or Am I wrong ?