Oil prices will 'certainly' go above $90 after sanctions on Iran and Venezuela 'tighten the market,' says energy and geopolitics expert

  • The price of oil will ‘certainly’ go above $US90 and likely spike above $US100 in the coming months, Richard Mallinson, energy and geopolitics expert and co-founder of Energy Aspects told Business Insider.
  • A price rise in 2019 was likely, but the Iran sanctions have brought it forward and exaggerated it, while Venezuela has also had an impact which has been overlooked.
  • “We’re nowhere near the end of this rally,” he told Business Insider.

The price of oil will ‘certainly’ go above $US90 and likely spike above $US100 in the coming months as sanctions on Iran tighten an already stretched global oil supply, an energy and geopolitics expert has told Business Insider.

The market in 2019 would always have been tight with producers struggling to meet global demand, but Iran has brought the inflated oil prices forward to this year, Richard Mallinson, energy and geopolitics expert and co-founder of Energy Aspects said.

“We’re nowhere near the end of this rally,” he told Business Insider.

The tight oil supply and price rise is due to increasing global demand, previously low prices and doubts about the future of oil causing many investors to stay away from long term oil supply projects. Sanctions on Venezuela and Iran which have tightened the market further.

“Certainly Iran is in the spotlight, and I think its the main driver of what we’ve seen over the last month or two, but Venezuela played a really important role in accelerating the shift in the market ever since – really 2016, when its production started to fall,” Mallinson said.

The US sanctions combined with the poor oil sector governance have seen Venezuela’s production drop by over a million barrels per day or 1% of global demand, which has left a hole in the global supply, but Iran is proving a bigger problem, Mallison said.

Iranian oil exports have already been hit by the November 4 sanctions, which are yet to take effect, declining steadily to below two million barrels per day in September, when they used to be an average of 2.7 million per day.

The “whole ecosystem” of business involved in the physical trade are making decisions whether they’re willing to continue being involved in Iran or not, and the majority are saying no because they’re afraid of being cut off from US markets, Mallison told BI.

“Many companies have told us that banks and insurers and shipping companies haven’t wanted to help them buy Iranian crude even before the sanctions formerly take effect,” Mallison said, because the US still haven’t made the rules of the sanctions clear, so companies don’t want to fall foul of them.

“No buyers want to be in a situation where they have an Iranian cargo still on the water sailing towards them when those sanctions come in,” he added.

“It was clear this was going to happen but it’s uncomfortable for the US because they still want to pursue this tough line against Iran. They don’t want domestic gasoline prices and fuel prices going up too high over the midterms and that’s why you’re seeing Trump leaning on Saudi Arabia, on OPEC, launching these tweet… because they’re trying to find a way to contain oil price increases without diluting the policy against Iran,” he added.

For the short term, Saudi Arabia is going to struggle to meet the gap in demand that has been left, and in the coming months it is likely, to raise production to nearly 11 million barrels per day.

“That will offset some of the loss from Iran. But it’s not a tap that can be opened overnight and that’s why we see the tightest point for the market right now in the fourth quarter.” Mallison said.

In the short term we certainly think that Saudi Arabia is going to struggle. We think it’s already in the next few month going to raise its production to close to 11 million barrels a day which would be a record, but we think it’s also at the limit of what it can do straight away.

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