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Page added on October 9, 2018

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What if oil goes to $100?

Consumption

Brent is expected to peak at $95 per barrel (/bbl) by the end of Q2 2019, said the Bank of America Merrill Lynch (BofAML), citing a forecast by Francisco Blanch and team and analysing the impact on  global growth of an even larger and more sustained oil spike.

The analysis specifically discusses the factors that could drive oil prices to $100/bbl, and hash out the winners and losers.

•    The Iran oil sanctions, shale bottlenecks, the collapse of Venezuela and demand growth pose upside risk to oil prices.

•    If oil remains around $100/bbl next year, growth in the Euro area, the UK and Japan would slow by a few tenths.

•    But the US, Australia and Brazil have ramped up energy production. This will likely cushion the blow to global growth.

What’s driving oil?

The most important near-term driver of oil prices is the supply shock coming out of Iran because of the impending US sanctions. Iran exported more than 2.1 million barrels per day (b/d) last year. The US administration’s stated goal is to bring that number down to zero, BofAML said in the research.

Although the sanctions are unilateral, they apply to all firms that do business in the US, including shipping and insurance companies. This gives the US leverage to force other countries to cut their imports of Iranian oil. China and India together account for nearly 60 per cent of Iranian oil exports this year.

While Indian refiners got waivers from the previous sanctions, it appears that this time they will comply. Refiners from Europe, Korea, Japan and India have already cut their purchases from Iran, and exports have fallen by 900 million b/d in the last five months. This leaves China with substantial room to increase its purchases from Iran, possibly at below-market prices.

However, doing so would further escalate China’s trade and broader geopolitical conflict with the US administration. Therefore our colleagues in commodities strategy believe China will take a middle course, maintaining its current imports from Iran, defying the sanctions, but not increasing imports. News reports suggest that China is increasing its crude oil imports from West Africa to compensate for import cuts from the US and possibly Iran.

The collapse of the Venezuelan economy is causing further supply disruption. Production in Venezuela has fallen by more than a third from its 2016 level and, barring a brief interlude in 2002, is at its lowest level since the 1940s.

Meanwhile US shale producers are hitting infrastructure and labour supply bottlenecks. And with the global economy growing slightly above trend, demand growth is also robust. All of these factors limit the ability of the other Opec members (notably Saudi Arabia) and Russia to curtail the rise in oil prices by increasing production. Indeed, suppliers are already having trouble keeping up with demand and OECD inventories have been falling steadily, the analysis said.

“Higher oil prices seem inevitable and, in our view, $100/bbl is easily within reach,” BofAML research concluded.

TradeArabia News

 



17 Comments on "What if oil goes to $100?"

  1. Outcast_Searcher on Tue, 9th Oct 2018 11:44 pm 

    And when it happens, people will pay more. And complain about it.

    And hopefully if it gets high enough, buy far more fuel efficient cars, so that would be good news.

  2. Richard Guenette on Wed, 10th Oct 2018 11:50 am 

    We need to stop using oil. It is becoming too expensive. There are better alternatives: walking, riding a bicycle, taking public transportation would save people more money. Oil is finite.

  3. Sys1 on Wed, 10th Oct 2018 1:37 pm 

    if oil goes to 100$, central banks will increase rates and oil will go down the toilette with global economy.
    Just like what happened in 2008, but far worse next time. We are going down the stairs. But won’t be “Stairs to heaven”, will be “Stairs to hell”

  4. Anonymous on Wed, 10th Oct 2018 11:36 pm 

    This month EIA STEO just came out. US oil prediction for DEC18 raised to 11.24 MM bopd, from 11.16. DEC19 raised to 12.29, from 11.89.

  5. marmico on Thu, 11th Oct 2018 3:44 am 

    Nony, it is interesting that the EIA October STEO projects an implied world stock all liquids build in 2019 which should put a ceiling on prices.

    https://www.eia.gov/outlooks/steo/images/Fig6.png

  6. Anonymous on Thu, 11th Oct 2018 4:58 am 

    Strip is backwarded also.

  7. Anonymouse1 on Thu, 11th Oct 2018 5:33 am 

    Damn, are ever stupid marmico. You and ‘Anonymous’ are the same fooking retard. Grow up, idiot. Your socking puppeting is well known, and its grown as stale as your talking points.

  8. Davy on Thu, 11th Oct 2018 6:06 am 

    a-none1, Nony and marmico are on topic. You are almost always off topic and obscure with a goofy Canadian anti-American dialect. You only post a real comment once a month or so. I say real but really just obscure and extreme but at least not your typical Facebook material that you post regularly. You are noise and if we had a moderator you would be gone.

  9. Anonymouse1 on Thu, 11th Oct 2018 6:21 am 

    If you ever left that run-down fantasy farm of yours, you’d be gone too. Gone to a mental institution, dumbass.

  10. Davy on Thu, 11th Oct 2018 6:22 am 

    lol, got a-none1 attention. That is always a plus!

  11. Anonymouse1 on Thu, 11th Oct 2018 6:23 am 

    And there is no ‘we’, wetard. There is just you. And no one, besides nederyid I suppose, gives a damn about you. Really, ‘we’ dont.

  12. Davy on Thu, 11th Oct 2018 6:32 am 

    I am going on the record forecasting a 30% correction to global markets by EOY especially in the US where the markets are most elevated. LOL, unless the dream team of central banks make it worse longer term with a temporary corrective actions. We need a recession and soon. Let’s hope we survive it.

    “It’s Just Beginning”: US Futures Plunge As Global Rout Hammers Asia, Europe”
    https://tinyurl.com/y9pwralv

    “It’s just a beginning,” said Banny Lam, head of research at CEB International Investment. “The U.S. tech bubble may take a while to burst and we are facing many external uncertainties – trade wars, risks in emerging markets currencies and oil price. And people should also watch yuan closely.” “Asia is like a leveraged play on the U.S. market and the global trade situation right now, that’s not going to change until a deal is reached between the two largest economies in the world,” said Olivier d’Assier, head of applied research for the Asia-Pacific region at Axioma. For emerging markets, “the trifecta of a falling U.S. market, higher U.S. interest rates, and a stronger dollar is a deadly combination so they are likely to remain under pressure.”

    Octobers are rarely happy ones for the markets!
    Graph: https://tinyurl.com/yb47rppo

  13. Davy on Thu, 11th Oct 2018 6:42 am 

    Add this to the market correction:

    “Major Event” Looms As Italy’s Lega Popularity Rises With Each EU Confrontation”
    https://tinyurl.com/yd6fovyy

    “One of the lessons of 2012 is that rising spreads in the eurozone can create a self-fulfilling dynamic once they breach a certain (unknown) level.”
    “The nervousness is fuelled by defiant comments from Italian ministers.”
    “The Lega, by contrast, is currently seeing its support rise. And this continues with every row with the EU.”
    “As of now, we see no signs of the Italian government backing down.”
    “Italy remains one of the eurozone’s slowest-growing economies. The IMF sees eurozone growth at around 2% this year, and a fraction less next year – while Italy’s growth is a little over half of that.”
    “So we are looking at a return of the near-3% deficit and inevitable increases in the debt-to-GDP ratio. This is clearly not sustainable.”
    “the country is even worse equipped to deal with the next financial crisis than it was in 2008.”
    “This will come to a head sooner or later, sooner if yields blow out and later once Brexit is worked out by March.”

  14. Sissyfuss on Thu, 11th Oct 2018 8:29 am 

    The stable genius has no clue about the machinations of the global, interconnected economy and could care less. His unevolved mind tethered to his massive ego will wreak havoc on all he touches, a reverse Midas touch if you will. In a serendipitous malfunction, he is doing more for the environment by ruining the global economy than a thousand Green Peaces.

  15. Anonymous on Thu, 11th Oct 2018 5:48 pm 

    Oil is down about $4 from recent highs. Could just be random variation but for what it is worth, the recent change is opposite of this article’s speculation. Also, likelihood is that it is lowered demand growth expectation driving the selloff.

    https://www.cnbc.com/2018/10/11/oil-prices-shed-more-than-5percent-during-two-day-stock-market-sell-off.html

  16. I AM THE MOB on Thu, 11th Oct 2018 6:01 pm 

    I think once the oil crunch hits..

    That’s it

    It will be a domino effect from there.

  17. I AM THE MOB on Thu, 11th Oct 2018 6:42 pm 

    Electricity distributors warn excess solar power in network could cause blackouts, damage infrastructure

    http://www.abc.net.au/news/2018-10-11/electricity-distributors-warn-excess-solar-could-damage-grid/10365622

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