Oil markets remained strong on Tuesday, with Brent crude near a four-year high reached the previous session. Oil markets have been driven up by looming US sanctions against Iran and an unwillingness or inability by Middle East dominated producer cartel OPEC and Russia to raise output.
Brent crude futures were at $81.32 per barrel at 0209 GMT, up 12 cents, or 0.2 per cent, and not far off the $81.48 a barrel peak reached the previous day, the highest since November 2014. US West Texas Intermediate (WTI) crude futures were at $72.10 a barrel, up 2 cents from their last settlement.
The United States from November will target Iran's oil exports with sanctions, and Washington is putting pressure on governments and companies around the world to fall in line and cut purchases from Tehran. “Iran will loose sizeable export volumes, and given OPEC+ reluctance raise output, the market is ill-equipped to fill the supply gap,” Harry Tchilinguirian, Global Head of Commodity Markets Strategy at French bank BNP Paribas, told the Reuters Global Oil Forum on Tuesday. OPEC+ includes Russia.
US President Donald Trump has demanded that the Organization of the Petroleum Exporting Countries (OPEC), of which Iran is a member, and Russia increase their supplies to make up for the expected fall in Iranian exports. OPEC and Russia, however, have so far rebuffed such calls.
“The oil market is, in my view, likely to hold on to these price gains... Any formal decision on oil output by the producer group, barring an extraordinary meeting, will only take place at the December meeting. Thus the window period for oil prices to potentially extend gains is quite wide as Iran looses exports and OPEC+ remains on standby,” Tchilinguirian said.
Ashley Kelty, oil and gas research analyst at financial services firm Cantor Fitzgerald said oil prices could soon hit $90 per barrel. “We don't believe OPEC can actually raise output significantly in the near term, as the physical spare capacity in the system is not that high.” Kelty said.
Bank of America Merrill Lynch said it has lifted its average Brent crude oil price forecast for 2019 from $75 per barrel to $80 per barrel, while it increased its WTI crude oil forecast by $2 to $71 per barrel in 2019. The US bank said “the Iran factor may dominate the market near-term and cause a (crude price) spike,” although it added that emerging market “demand concerns could reappear thereafter.”
Indian refiners - struggling from high crude feedstock prices and a sliding rupee - are planning to reduce oil imports in what could be a first sign that high prices are starting to hurt demand.