Baku, Azerbaijan, Jan.15
By Leman Zeynalova – Trend:
There are two main geopolitical factors, which will affect world oil prices in 2018, according to the US JP Morgan Bank.
“There are increasing risks to oil prices especially from Iran and Venezuela and potentially even from US oil supply growth in 2018,” said the analysis obtained by Trend.
Venezuela’s situation is becoming increasingly challenging as hyperinflation wrecks the Bolivarian Republic’s economy every day.
“Venezuela, which is part of the OPEC-NOPEC deal in scaling back production, has contributed more than its share to the deal, thereby increasing OPEC’s compliance and tightening global oil markets. In 2017 alone, Venezuela’s crude production has declined by close to 200,000 barrels per day from December 2016 to December 2017,” said the report.
If the rate of decline of Venezuelan production was to increase, this would help draw down OECD (Organization of Economic Co-operation and Development) oil stocks even faster to the 5 year average targeted by OPEC, according to JP Morgan.
The bank analysts believe that another rising geopolitical risk in 2018 is potential for Iranian sanctions to be re-imposed.
“Although looking unlikely at this point but if US was to reintroduce sanctions on Iran, it could reduce incentive for foreign oil companies to invest in Iran that has barely managed to increase output in the last 1 year,” said the analysis.
The latest protests in Iran is another sign of growing instability in Middle East which controls around 25 percent of global oil supplies, said the JP Morgan report.
With regard to the prospects for extension of OPEC deal beyond 2018, the bank analysts believe that the cartel is very likely to cut short the Declaration of Cooperation by mid-2018 if markets were balanced, as their target five year OECD inventories average currently stands at just 79 million barrels in surplus.
“This makes first half of 2018 more price supportive than our initial expectations, and second half could be less supportive due to OPEC and US shale response to current price action,” said the report.
OPEC and several other non-OPEC producers have reached an agreement to extend the production deal for a further nine months. This would shift the expiration date of the agreement from March to the end of 2018. The agreement is on the same terms as those agreed in November 2016.
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