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Oil prices to remain well supported by Iran risks

Oil&Gas Materials 21 September 2018 14:04

Baku, Azerbaijan, Sept.21

By Leman Zeynalova – Trend:

Iran’s oil supply risk will likely overpower risks to demand emanating from higher oil prices and US-China trade tensions, the US JP Morgan Bank said in its report obtained by Trend.

Sanctions are due to be re-imposed on Iran's oil industry on November 4. The move comes after US President Donald Trump decided to withdraw his country from the 2015 nuclear deal in May.

The US has said that countries or companies that conduct transactions with Iran are liable to face secondary sanctions.

“We raise 4Q18 Brent by $22/bbl to $85/bbl and 4Q18 WTI by $19.8/bbl to $75.83/bbl. The upwards revision is strongly driven by significant supply side risks more than offsetting the expected softness in demand,” said the report.

Given Iran’s significance in global oil markets, the Bank analysts believe that oil prices are likely embedding a $6-9/bbl premium attributable to Iran.

“In the absence of Iran supply concerns, oil prices would have likely stayed around or below $70/bbl, but with the presence of Iran risks we expect oil prices to remain well supported in the months ahead. And if Chinese fiscal policy is supportive of base metals in the remainder of the year, we can expect the two commodities to be positively correlated once again at least in the near term after diverging for most of the year,” said the report.

JP Morgan estimates that Iran oil sanctions put 1.5-2.4mbd of oil exports at risk, which would more than compensate for any demand drop due to slower global growth.

“From this perspective, while the growth impact of US-China trade disputes matter for commodities demand, in the case of oil, Iran matters a lot more given the large supply shock it could represent in the very near term,” said the report.

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