May 9, 2018 / 10:24 AM / in 5 months

Analyst view - Oil markets weigh fallout as U.S. quits Iran deal

(Reuters) - President Donald Trump has pulled the United States out of an international nuclear deal with Iran, raising the risk of further conflict in the Middle East and threatening to disrupt global oil supplies.

FILE PHOTO: Fuel overflows as an Iranian man pumps gasoline into his car at a gas station in Tehran January 21, 2007. REUTERS/Caren Firouz (IRAN)

The 2015 agreement, worked out by the United States, five other world powers and Iran, lifted sanctions on Tehran in exchange for limits to its nuclear programme. The pact was aimed at preventing the OPEC member from developing a nuclear bomb.

Oil prices have jumped to their highest since 2014 following Tuesday’s announcement.

The following are views on the likely impact on oil markets:

UBS, MAY 10 NOTE: MARKET LIKELY TO BE IN DEFICIT IN 2018

“U.S. President Donald Trump’s decision to withdraw from the Iran nuclear deal is likely to curb global oil supply. With supply risks already high in Venezuela, where oil production has been in free fall, the oil market is likely to remain in deficit this year.”

UBS said about 200,000-500,000 barrels per day (bpd) of Iranian exports could be disrupted over the next six months.

The bank raised its six-month Brent price LCOc1 forecast to $80 per barrel from $65 a barrel, and its 12-month view to $75 a barrel from $62 previously. It sees U.S. benchmark West Texas Intermediate (WTI) CLc1 at a $5 discount to Brent.

“How great the volume disruption will be will remain unknown for a while. It will also depend on how China and India, the two largest buyers of Iranian oil, react.”

ANZ, MAY 10 NOTE: INDIA, CHINA COULD IMPORT MORE IN CASE OF DISCOUNTS

“We see the level of oil impacted being much lower, at around 300 kb/d. The larger share of exports go to the Asian market, especially China and India; and these countries could import more if Iran offered oil at discounted prices.”

BANK OF AMERICA MERRILL LYNCH, MAY 9 NOTE: SEE NO MAJOR DROP IN EXPORTS

The bank said it saw a risk of $100 per barrel, as “our forward balances embed OPEC ‘tapering’ and no major drop in Iranian crude exports.”

“Thus, if a new Iran deal is not reached in the next six months or OPEC/Russia extend production cuts into 2019, global oil markets would likely tighten further.”

STEPHEN INNES, HEAD OF TRADING FOR ASIA/PACIFIC AT FUTURES BROKERAGE OANDA IN SINGAPORE, MAY 10 NOTE: PRICES COULD GO HIGHER

“Putting API’s inventories report into context, it confirms the general trend that U.S. inventories are shrinking. Suggesting unless there are some production increases from the OPEC/Non-OPEC accord to offset the drop in Venezuelan production, and the expected decline of the Iranian output, prices could be in for a significant leg higher.”

JBC ENERGY, MAY 9 NOTE: SHARP DROP IN PURCHASES OF IRANIAN CRUDE

“We expect to see a sharp drop in purchases of Iranian crude oil from all sides over the next couple of months, just as crude markets reach peak seasonal tightness.

“Estimates vary from a couple of hundred thousand barrels per day (b/d), essentially token compliance from some U.S. allies in East Asia to visibly reduce their Iranian crude imports, to more than 1 million b/d.”

JBC Energy expects some 500,000 to 700,000 b/d of Iranian crude oil exports likely to be pulled out of the market over coming months.

GOLDMAN SACHS, MAY 9 NOTE: PRICES SKEWED TO UPSIDE

The announcement on Iran and the elevated geopolitical risks in other key oil producing countries such as Saudi Arabia and Venezuela “all create risk of additional production losses in the face of depleted inventory buffers.”

Goldman Sachs saw its summer $82.5 per barrel Brent price forecast as “skewed to the upside”.

“As an indication, the 2012 precedent was for 20 percent reductions every 180 days, which would represent a 0.5 mb/d loss of production initially given Iran’s 2.6 mb/d current crude oil exports. All else constant, we estimate that such a 500 kb/d supply loss until year-end would support oil prices by $6.2/bbl.”

BARCLAYS, MAY 9 NOTE: LITTLE IMPACT ON IRAN OUTPUT

“We expect little impact on Iranian crude production in 2018 despite the understanding given on 8 May that the (sanctions) waiver is not going to be renewed.

“As a result of this decision, we lower our output expectations for Iran by around 150 kb/d in 2019 (from 3.91 mb/d to 3.74 mb/d), a volume that we expect could be offset by Saudi Arabia unilaterally raising output back to its quota level of 10.1 mb/d (at the expense of the country’s spare capacity) or by a coordinated reconfiguration of the OPEC/Non-OPEC Joint Declaration of Cooperation for 2019.”

BENJAMIN LU, COMMODITIES ANALYST AT SINGAPORE-BASED BROKER PHILLIP FUTURES, MAY 9 NOTE: NO IMMEDIATE CUT IN IRAN OUTPUT

“We do not foresee an immediate reduction of Iranian production as Iran looks poised to ramp up on production to capitalise on the imposed timeframe.

“Much emphasis will have to be placed on the effect of U.S. pressure on importing nations of Iranian oil. Thus we postulate that the current term effects will be largely limited on the upside for oil prices.”

NAEEM ASLAM, CHIEF MARKETS ANALYST, THINK MARKETS, MAY 9 NOTE: NO BULL CASE

“Let’s say that Iran’s oil production does go down by half a million barrel per day, which would impact the price more positively – so, even with lower production, Iran may not be in such a bad position because of the higher oil price.

“Most importantly, Iran learned how to work with sanctions and the country is in a much stronger position politically and economically to work with other major players in the region to find a solution which fits all.

“Hence, there may be no point in becoming a massive bull on oil (I do not see any bigger impact on the oil supply), or hold a massive bearish position on Iranian currency or the equity market.”

COMMERZBANK, MAY 9 NOTE: NOT AS BAD AS LAST TIME

“In the period up until the start of 2016, up to 1 million barrels of Iranian oil per day were stripped from the market by the sanctions at the time. Nearly half of this total was due to a complete EU import ban.

“This is unlikely to happen this time around as the U.S. has revoked the deal unilaterally and against the will of most other countries. Meanwhile, Saudi Arabia has signalled its willingness to offset possible sanction-related supply outages from Iran.”

CAPITAL ECONOMICS, MAY 9 NOTE: DEPENDS ON IRAN’S MOVE, SEVERITY OF SANCTIONS

“The re-imposition of U.S. sanctions on Iran is unlikely to have a major impact on global oil supply.

“The overall impact on oil supply and prices will depend on whether Iran stays in the deal and how severe the secondary sanctions are. At the very least, there is likely to be a higher risk premium in oil prices for the next few months.”

“However, for now, we expect the impact on supply to be relatively small and so are sticking with our end-2018 forecast of $65 per barrel, down from about $77 today.”

CREDIT SUISSE EQUITY RESEARCH, MAY 8 NOTE: BIGGER IMPACT IN 2019

“We expect minimal impact to Iranian exports over the next several months (~200 MBbld by 4Q18), but a greater impact in 2019 as buyers of crude are given a period of time to show efforts at reducing Iranian imports and more restrictive sanctions targeting banks that transact in Iranian oil take effect.”

Reporting by Arpan Varghese, Karen Rodrigues and Eileen Soreng in BENGALURU, and Koustav Samanta in SINGAPORE; Editing by Mark Heinrich and Tom Hogue

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