The price of crude oil is on a rebound in the international market not because of any discernible economic activity but as a result of geopolitical uncertainty concerning two of its greatest producers – Iran and Venezuela. Also instrumental to the jump in crude oil price is the trade war between the U.S. and China which was declared “on hold.”
Geopolitical concerns that U.S. sanctions on Iran over the nuclear impasse could curb the country’s crude exports have led crude prices to trade higher in recent weeks, and the market is now weighing the possibility of additional sanctions on Venezuela following the country’s presidential election over the weekend deemed as illegitimate.
This is good for Nigeria, where crude oil sales represent the biggest financial buffer of the economy. The U.S. has threatened more sanctions on Iran according to a statement by Secretary of State Mike Pompeo. Pompeo claimed the sanctions would be the “strongest in history when complete.”
The prospect for a disruption to global oil supplies is expected to increase the pace of rebalancing in the oil market, prompting analysts to raise their forecast for oil prices.
Citigroup raised its base-case oil-price forecast by $10 a barrel in 2018, up to $75 barrel annual average and said oil prices would continue to trend higher through 2018.
“Our expectation for balancing, from a market currently in deficit, has been pushed to the second quarter of 2019 from the third quarter of 2018 period we expected previously,” Citigroup said.
Yesterday, the Brent crude futures gained 23 cents to trade at $78.74 by 11:22 a.m. EDT, having retreated to $78.10 earlier in the session. U.S. crude futures were up 56 cents at $71.84.
Brent pushed past $80 a barrel last week for the first time since 2014. Output in Venezuela has dropped by a third in two years to its lowest in decades, according to Reuters and it is projected that production likely falling below 1 million barrels per day before the end of the year. This will be compounded by U.S sanctions on it and Iran, the price will definitely shoot up as supply will be outpaced by demand.
