With the US-Iran issue remaining unresolved, Brent crude touched $80 a barrel last week. Further escalation of prices towards $85 a barrel cannot be dismissed in the first half of 2018.

Brent crude hit $80.85 on Thursday, a level seen earlier in November 2014. Earlier on May 9 when US president Donald Trump announced his decision to withdraw from the Iran nuclear deal and re-impose sanctions, Brent crude had moved up to $77 a barrel. The Trump administration has given companies 90-180 days to wind down current business with Iran subject to sanctions.

The Iranian nuclear deal was brokered in 2015 with Tehran by the five permanent members of the United Nations Security Council – China, France, Russia, the United Kingdom and the United States – along with Germany to put an end to the uncertainties over the nuclear programme of the Persian country.

In January, Trump warned that he would not certify compliance as per the agreement in May if Iran does not make radical changes.

“Iran supplies around 3.5-4 million barrels of crude oil per day into the global pool and sanctions would affect this supply. The sanctions and possible retaliation of Iran by continuing its nuclear programme would lead to geo-political tensions,” said Hitesh Jain, analyst, commodities, India Infoline.

Last week, French oil major Total had said it would stop a multi-billion dollar investment in Iran if it does not receive a waiver from the US. European Union, which was earlier trying to dissuade the US from withdrawing from the deal, now was exploring ways to protect its companies. The crude oil prices moved up on this development last week.

Further, Venezuela’s state-owned oil company – Petróleos de Venezuela (PDVSA) –  was reported to have bought nearly $440 million worth of foreign crude oil and shipped it to Cuba. The purchase threw light on Venezuela’s crude production, which hit a 33-year low during the first three months of 2018. The production was also down 28 per cent over the past 12 months.

Moreover, the oil storage data from the US Energy Information Administration (EIA) reported a drop of about 1.4 million barrels. A drop during summer, when the demand increases, was seen supporting oil prices.

After touching $80 a barrel, Brent crude gave up the gains in the same session itself. The US West Texas Intermediate (WTI) crude, however, did not move much these days. This led to a widening gap between WTI and Brent. Last Thursday, WTI crude moved up to $72.30 a barrel and fell back to $71.49 a barrel. Despite the oil storage data, the medium to long-term outlook for the US production remains strong.

According to analysts, crude prices can remain firm in the first half of the year with geo-political tensions continuing. By July, Brent crude may even touch $85 a barrel.

However, prices may cool subsequently as the Opec members can compensate the Iran supply. The Opec members, which are currently undertaking a production cut to boost prices, can increase supply any time.

Paris-based International Energy Agency (IEA) too has said the demand forecast could moderate in the second half of the year due to higher prices.

US might also increase its production as crude oil prices remain at the higher levels. This would ensure that crude trades within a range in the second half of the year.

sangeethag@mydigitalfc.com