Major oil trading houses are predicting the return of $100 crude for the first time since 2014 as the market braces for the loss of Iranian supplies because of U.S. sanctions.
Almost 2 million barrels per day (bpd) of crude could be taken out of the market as a result of the U.S. sanctions against Iran by the end of the fourth quarter this year, said Daniel Jaeggi, president of commodity merchant Mercuria Energy Trading, making a crude price spike to $100 a barrel possible.
Such a price rally would mark the first time since the summer of 2014 that oil would return to the $100-a-barrel level that became the norm in the early part of this decade
“We’re on the verge of some significant volatility in Q4 2018 because depending on the severity and duration of the Iranian sanctions, the market simply does not have an adequade supply response for a 2 million barrel a day disappearance of oil from the markets,” Jaeggi said.
Washington has already implemented financial sanctions against Iran and it plans to target the country’s oil exports from November 4, putting pressure on other countries to also cut Iranian crude imports.
Ben Luckock, co-head of oil trading at fellow merchant Trafigura said crude oil prices could rise to $90 per barrel by Christmas and to $100 by the New Year as markets tighten.
Oil prices rose 2 percent on Monday as U.S. sanctions restricted Iranian crude exports, tightening global supply. It is currently trading at $72.02, up by 1.72%.
Oil prices have been rising since early 2017, when the Organisation of the Petroleum Exporting Countries (OPEC), together with other suppliers including Russia, started withholding output to lift crude values.
Unplanned disruptions from Venezuela to Libya and Nigeria have further tightened the market just as global demand approaches 100 million bpd for the first time.
OPEC and other oil producers are considering raising output by 500,000 bpd to counter falling supply from Iran.
It could prompt Washington to consider extraordinary measures, including the use of the Strategic Petroleum Reserve, to cool down fuel prices ahead of the U.S. mid-term elections.