Brent prices to significantly run up by late 2018
Baku, Azerbaijan. Brent prices will significantly rise by late 2018. Fitch Solutions (part of Fitch Group) said in its report obtained by Trend. As for the new US sanctions against Iran and their impact on the oil market, Fitch Solutions said it in any case, it does not believe that markets are adequately pricing in the impact of sanctions.
"This leaves room for a significant run up in Brent towards the end of the year. Investors are pricing in little or no impact in the wake of November 4, with Brent futures contracts averaging around $72.8 per barrel across Q418 and Q119", said the report.
The current spot price is $72.4 per barrel. The Fitch Group company is substantially above-consensus and its forecast implies Brent will average almost $80 per barrel over the rest of the year.
Further, the report said that OPEC and Russia are rapidly returning barrels to market, adding around 450,000 barrels per day on a net basis in July.
"In addition, outside of OPEC we see few pockets of growth in H2, inform Trend.
US shale, which is the major bright spot, faces near-term logistical and services constraints, which will decelerate (although by no means derail) its overall production growth", said the report.
Fitch Solutions said that due to various strategic considerations, the company does not believe that either Saudi Arabia's full spare capacity or the US' strategic petroleum reserve will be brought into play.
"Admittedly, export growth in OPEC is lagging production, due to seasonally higher demand in the Middle East. While production from Middle Eastern OPEC members rose sharply in July by around 340,000 barrels per day, exports slumped month-on-month. Exports should rise again in Q4, helping to loosen the global market".
Nevertheless, the company does not see adequate capacity to offset the losses from Iran.
"In addition, the currently low level of production outages and shrunken spare
capacity globally leaves the market heavily exposed to any further shocks on the supply side".
The US reimposed stiff economic sanctions on Iran on Aug.6, ratcheting up pressure on the Islamic Republic despite statements of deep dismay from European allies, three months after President Donald Trump pulled the US out of the 2015 nuclear deal between Tehran and world powers.
A first set of reimposed US sanctions affect financial transactions that involve US dollars, Iran's automotive sector, the purchase of commercial planes and metals including gold.
A second batch of US sanctions targeting Iran's oil sector and central bank are to be reimposed in early November.