Daily Management Review

Oil Price Could Go Over $90 A Barrel Due To US Sanctions On Iran: Analysts


According to one oil market analyst, the heightened fears of supply side shock is clouding the global crude oil market as predictions are being issued that the price of crude could touch $90 a barrel because of the potential US sanctions on Iran.
"As we go more towards (the fourth quarter) … that's when we really see the risk of prices going well into the 80s and potentially even into the 90s but very critical is how much Iranian production we lose," Amrita Sen, chief oil analyst at Energy Aspects, said during a television interview.
"A lot of people think China can just buy all of the Iranian oil but they came out and said: 'Yes, we may not reduce but we are not going to increase our intake either.' So, you could see a significant crunch in terms of lost supplies into the market and then that obviously means higher prices," she added.
Compared to the bearish indicators in the market which include the increase in production by OPEC and its allied partners, the markets are contemplating the bullish factors more which include potential supply disruptions to Iranian crude exports because of US sanctions.
In June an agreement to increase production by up to 1 million barrels per day starting in August was mad between Russia, OPEC leader Saudi Arabia and the other members oil cartel that is dominated by producers form the Middle-East.
The price rally that was going on in the oil market was halted by that agreement and there was 7 per cent fall in crude futures after hitting a point over $80 a barrel in May.
Following the decision of the U.S. President Donald Trump to take the country out of the international treaty halting nuclear program of Iran this summer had pushed crude prices. It is widely expected that the world's fifth-largest oil producer would be impacted by possible US sanctions which could come into force on November 4. Those sanctions would follow economic sanctions due to take effect from Tuesday.
There was a shortage of about half of the 2.4 million barrels per day of oil for exports form Iran during the period that sanctions by a number of global powers were imposed on Iran. However, a section of analysts is of the opinion that sanctions this time around would have a lesser impact – affecting about half of the amount of crude that was impacted last time. But in recent weeks, there have bene signals that some companies are complying with the tough stance of the US president which has raised their expectations of shortage of crude because of the sanctions.
For example, an estimation by Morgan Stanly pegged a drop in production of Iranian oil to 2.7 million barrels a day by the fourth quarter and over 1 million barrels would be taken offline.
A note from analysts at Bank of American Merrill Lynch issues in late just said that "for every 1 million barrels per day imbalance, we see a price impact on Brent of around $17."