After close to four years of lacklustre prices, investors and market watchers may need to accept that oil at the US$80 to US$85 level may be the new norm, going forward.
The last time oil hovered at the US$85 level was in 2014. It touched an all-time high of US$115.06 per barrel on Sept 16 that year.
Several international analysts have suggested that oil could hit the magical US$100 level should supply disruptions not let up amid demand that is growing.
Brent crude oil surged above US$85.08 on the ICE Futures Europe exchange yesterday – its highest level in almost four years as a dip in exports from Iran and Venezuela added to concerns about a global supply crunch.
Further fuelling this price increase was the surprise US$1.2 trillion North American Free Trade Agreement (Nafta) deal last Sunday following last-minute negotiations between President Donald Trump and Canadian Prime Minister Justin Trudeau. The Nafta deal has removed fears that the roiling trade war would affect global growth.
Growth prospects are seen not only in Canada and the United States, but for North America too.
On the oil front, the focus is on the Iranian sanctions, which come into effect on Nov 4. Iran is the third-largest producer in the Organisation of the Petroleum Exporting Countries (Opec), providing some 3% to 5% of the daily global oil consumption.
Come Nov 4, some 1.5 million barrels per day (bpd) of Iranian oil will be taken off the market, and if Opec’s de facto leader, Saudi Arabia, is unable to meet that shortfall in production, some analysts are already eyeing oil at the US$100 level.
HSBC, in its fourth-quarter global economics outlook, said its oil analysts anticipated a growing risk that crude oil could touch US$100 per barrel.
“This essentially leaves the world’s only swing producer powerless to prevent a supply shock and subsequent price spike in the final quarter of this year,” said Stephen Brennock, an oil analyst at PVM Oil Associates, in a research note published on Monday, as quoted by CNBC.
A wire report highlighted that Opec delivered only a limited increase in oil production in September, as a cut in Iranian shipments due to US sanctions offset higher output in Libya, Saudi Arabia and Angola.
Opec pumped 32.85 million bpd in September, a survey on Monday found, up 90,000 bpd from August’s revised level and the highest this year.
Nonetheless, the number was lower because of declines in Iran and Venezuela.
Meanwhile, oil-dependent Venezuela has been in a political and economic crisis since the oil price crashed in 2014. Its oil production has been heading south, with observers saying that should the current pace continue, its production could fall below one million bpd by the end of the year or early 2019.
As for the United States, shale production also appeared to be levelling off.
Before the shale revolution some four years ago, the United States was producing some 4.5 million bpd. That has now increased close to 11 million bpd as of this year.
However, bottleneck and infrastructure issues have been slowing down its production.
The Energy Information Administration (EIA) has revised down its forecast for US oil production growth for 2018, an acknowledgement that pipeline constraints are slowing output gains in the Permian basin.
The EIA believed that the United States would average 10.68 million bpd this year. It has also revised down its forecast for next year’s average output to 11.7 million bpd, down from 11.8 million bpd previously.