Friday , 8 December 2023

Oil Price Outlook Not So Bright In 2019 As Iran Loses Exports

Radiofarda – Reuters has surveyed 32 economists and analysts to find out what are their predictions for oil prices in 2019 and it seems that no one expects to see more expensive oil, at least for a while.

The experts believe North Sea Brent will hover around $70 a barrel in 2019, which is close to the 2018 average. Currently Brent is trading at $54. So, it will take time for oil to climb back to $70 a barrel, if favorable conditions prevail.

For a while at least, Brent oil will trade lower than the $70 target analysts have set for 2019. But other types of oil usually trade lower than Brent, so countries such as Iran will sell their oil much cheaper.

In the sanctions environment, Iran has to give further discounts to customers, which will cut into its revenues.

The main reason for the lackluster price outlook is oversupply, fueled by U.S. production and the expectation of global economic slowdown reducing demand.

President Donald Trump has been lobbying for lower prices, asking Saudi Arabia to help keep oil cheap. But at the same time, his sanctions on Iran’s oil reduced supplies by at least a million barrels per day. This played a role in higher prices in October and November, but then the market noticed an actual abundance of crude in early December and prices tumbled.

An Iranian oil tanker is seen floating on the Caspian Sea, as Iranian President Mohammad Khatami attends the opening ceremony 29 April 2004, of the Neka oil terminal on the Caspian Sea, 340 kms northwest of Tehran in Mazandaran province, a swap agreement

Despite U.S. Sanctions Iran’s Budget Projects Higher Oil Revenues

Iran could lose more oil exports if the U.S. had not given sanctions waivers to several friendly countries, such as India and Japan. But these waivers might come to an end and maybe another half a million barrels a day might be taken off the table, helping prices go up a bit.

The Organization of the Petroleum Exporting Countries and other producers including Russia, known collectively as OPEC+, agreed in December to cut production by 1.2 million barrels per day (bpd) to try to drain global crude inventories and support prices.

But the cuts have not gone into effect yet and prices have fallen more than 15 percent since the announcement.

“The market had largely priced in renewed production cuts from OPEC. As a result, we expect prices to sink if OPEC or Russia diverge from their production quotas notably,” said Cailin Birch, an analyst at the Economist Intelligence Unit told Reuters.

“We expect the cuts to be renewed in April, when the deal comes up for review, as higher output from the U.S. and weakening global demand require continued restraint.”

Oil prices have fallen more than 40 percent from multi-year highs reached in early October on concerns about the impact of a trade dispute between the United States and China on global economic growth and demand for oil.

Another potential headwind next year is slowing consumption.

Many analysts project demand growth of a little over 1 million bpd in 2019, compared with an increase of 1.54 million bpd in 2018, according to the U.S. Energy Information Administration.

Meanwhile, U.S. shale oil output growth is expected to remain robust, adding to supply. The United States surpassed Russia and Saudi Arabia as the world’s biggest oil producer in 2018, with overall U.S. crude production climbing to a record 11.7 million bpd.

Overall, this is not a rosy picture for Iran, already suffering from deep economic crisis, compounded by U.S. sanctions, which have impacted the country’s banking ties with the world and its non-oil trade.

With reporting by Reuters