Iran could spike oil prices to catastrophic levels, as severe rise imminent
Today’s Brent oil price is $78.39 per barrel following a 1.2% climb on Monday.
Nothing compared to what the ultimate climb would likely be in a 2-year time-frame.
What about this summer? Crude oil in the low $70s a barrel could soon feel like a bargain.
The Oil Price Information Service’s Global Head of Energy Analysis Tom Kloza recently estimated that Brent and WTI prices could surge another 10% this summer, a rally that could hit consumers at the gas pumps.
He added: “There is a reasonable — albeit unlikely — chance Brent could reach $90 a barrel on geopolitical events in places like Libya, Nigeria and Venezuela”, as reported by CNBC.
Is $150 possible? How about $300?
Iran could by itself cause a catastrophic rise to oil prices, and massive economic upheaval, if it chooses to, albeit at great peril to itself, but oil prices are well on their way to reach new records if current market conditions persist.
The Iran threat
OilPrice.com, a prominent industry site, said Iranian officials threatened they might block the Strait of Hormuz if their oil exports are blocked.
“Around 17 million barrels per day or 35% of all seaborne oil exports pass through the strategic waterway and, needless to say, such a move would propel oil prices well into triple figures,” Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note.
“A blockade of this transport route would thus have dramatic consequences for global oil supply and an impact on prices that is almost impossible to put into figures,” Commerzbank wrote in a note, reported by OilPrice.com.
Al Bawaba, a business site, said analysts have pointed out that Iran, OPEC’s 3rd largest producer, could prevent the passage of oil shipments through Strait of Hormuz if America pushes ahead with its plan to stop all countries from buying Iranian oil, and will leave a dark shadow on Gulf countries in general and Kuwait in particular, quoting reports by Kuwait’s Al-Rai daily.
Kuwaiti oil exports, around two million barrels per day, run through the Hormuz Strait, the only way for it.
“They warned that if Iran closes the strait, it will prevent oil shipment of up to 15 million barrels per day and this is considered a real catastrophe,” Al Bawaba reported analysts as saying.
“It could affect the entire world and lead to unprecedented oil price hike, about $300 per barrel.”
Iran’s harsh words
Iran’s oil minister has hit back at US president Donald Trump today over his demand for more OPEC production, saying it was an insult to the organization, CityAM.com, the online presence of City A.M., London’s first free daily business newspaper, said.
In an interview with state television, Iranian oil minister Bijan Zanganeh said: “Trump sends every day a new message that creates uncertainty in the market.”
Zanganeh added: “Trump’s order to OPEC members to increase production is a great insult to those governments and nations, and destabilizes the market.”
The recent comments came following news that Saudi Arabia raised oil output by about 500,000 barrels per day (bpd) in June, as per Reuters, pushing its production to 10.5 million bpd.
Opec members agreed with Russia and other oil-producing allies last month to raise output by 1 million bpd.
US president Donald Trump has called on the kingdom to ramp up output by 2 million bpd to calm rising oil prices, amid outages in Venezuela and an impending drop in Iranian supplies after the reimposition of oil sanctions, the Financial Times (FT) reported.
Media reported that Saudi agreed to use 2 million bpd in reserves to meet that request.
Iran’s oil exports
OilPirce.com said South Korea halted Iranian oil imports, a result of US sanctions pressures.
The US-China tariff wars with a tit for tat $34 billion worth of goods on both sides in additional tariffs began on Friday, as China moves to put tariffs on US crude, pushing Chinese refiners to look elsewhere for oil imports, perhaps Iran.
Supply crunch to spike prices
A dearth of investment in new sources of oil production could lead to a price spike, and investors who demanded to reign in capital expenditures (CapEx) and return cash from oil companies may soon regret that position, said OilPrice.com.
“Any shortfall in supply will result in a super-spike in prices, potentially much larger than the $150 a barrel spike witnessed in 2008,” it reported an analyst as saying.
According to FT, the oil industry risks a supply crunch.
FT quoted Amin Nasser, chief executive of Saudi Aramco, saying that rising investment into a short-cycle output, which ebbs and flows faster than conventional projects, would not be enough to meet rising crude demand.
“Something like shale oil …it is not going to really create a major dent in total global supply requirements up until 2040,” said Nasser in an interview with FT.
International energy majors are prioritizing cutting costs and returning money to investors through dividends and share buybacks after a brutal industry downturn.
The International Energy Agency (IEA) has said insufficient investment into new large-scale projects will lead to a supply shortfall in the early 2020s just as US shale production plateaus.
In the latter half of this decade, total capital expenditure by energy groups is expected to fall by nearly half to $443.5bn from $875.1bn between 2010-15, according to consultancy Rystad Energy, as reported by FT.