Oil prices have been given a boost, but they could struggle to head higher


  • Oil will be in a $55 to $75 per barrel range on a 12-month basis, said Manpreet Gill, head of FICC investment strategy at Standard Chartered Private Bank.
  • There’s been plenty of price-supportive news in the short term, but oil could struggle to head higher still, Gill said.
  • Concerns over Venezuela and impending U.S. sanctions on Iran have supported oil prices in recent weeks.

The 'basic demand-supply fundamentals' imply oil prices will dip

‘Basic demand-supply fundamentals’ imply oil prices will dip: Strategist  

Oil prices have climbed in recent weeks, but whether that rise will continue for longer could be in doubt.

“On a 12-month basis, which is the horizon we take, we think we’re more likely to be in sort of a $55 to $75 range, which is a little bit lower than where we are today,” Manpreet Gill, head of fixed income, currencies and commodities investment strategy at Standard Chartered Private Bank, told CNBC’s Sri Jegarajah.

“The reason for that is simply, when we look out beyond the next few months and really take that one-year view, we’re looking at the basic demand-supply fundamental. That’s what causes our bullish view all the way coming in over the past year or two. That’s what’s causing us to say, how much can this go if we start really looking beyond the next three months?” Gill said.

Prices have risen recently amid concerns over the impact of potential U.S. sanctions on Venezuela’s oil exports following a disputed election which saw Venezuelan President Nicolas Maduro re-elected. Also, an executive order that prohibited U.S. citizens from participating in the sale of Venezuelan receivables linked to oil was signed by U.S. President Donald Trump on Monday, Reuters reported.

U.S. West Texas Intermediate crude futures were up 20 cents, or 0.28 percent, at $72.44 per barrel. International benchmark Brent crudefutures were 13 cents, or 0.16 percent, higher at $79.35 during Asia afternoon trade on Tuesday.

Brent had crossed the $80 mark last week for the first time since November 2014.

View of an oil refinery in the Maracaibo lake, on May 2, 2018 in Maracaibo, Venezuela.

Federico Parra | AFP | Getty Images
View of an oil refinery in the Maracaibo lake, on May 2, 2018 in Maracaibo, Venezuela.

“The question for us is how much more can this price move, in the sense of how much more bad news can we get?” Gill said.

That was given how the demand-supply balance will begin to turn less supportive for oil in 2019, Gill said. “There [will be] much more supply relative to demand, so you’re not getting the same level of fundamental support,” he added.

In recent weeks, markets have been focused on the effect of impending U.S. sanctions on Iranian oil exports, which the Trump administration has repeatedly threatened to do. Trump had announced that he was pulling U.S. out of the Iran nuclear deal earlier this month.

More broadly, prices have firmed amid ongoing oil production cuts led by the Organization of Petroleum Exporting Countries.

Oil holds gains as markets tighten amid OPEC cuts, Iran sanctions


  • Oil prices held firm on Tuesday.
  • Ongoing production cuts by OPEC and looming U.S. sanctions against Iran have tightened the market.

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices held firm on Tuesday as ongoing production cuts by OPEC and looming U.S. sanctions against Iran tightened the market amid signs of ongoing strong demand.

Brent crude futures, the international benchmark for oil prices, were at $78.30 per barrel at 0432 GMT, up 7 cents from their last close and not far off a three-and-a-half year high of $78.53 a barrel reached the previous session.

U.S. West Texas Intermediate (WTI) crude futures were at $71.02 a barrel, up 6 cents and also not far off their Nov. 2014 high of $71.89 a barrel reached last week.

Markets have generally tightened as the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, has been withholding supplies since 2017 in order to push up oil prices.

With renewed U.S. sanctions looming against OPEC-member Iran, analysts said crude prices were well supported.

“The commitment of Saudi Arabia and the rest of OPEC to the production cuts is a major factor in supporting the price at the moment as well as the possibility of reduced exports from Iran due to sanctions,” said William O’Loughlin, investment analyst at Rivkin Securities.

How will higher oil prices affect you?  

The OPEC cuts and looming sanctions come amid strong demand.

In China, the world’s biggest oil importer, refinery runs rose nearly 12 percent in April compared with the same month a year ago, to around 12.06 million barrels per day, marking the second-highest level on record on a daily basis, data showed on Tuesday.

The tightening market has all but eliminated a global supply overhang which depressed crude prices between late 2014 and early 2017.

OPEC figures published on Monday showed that oil inventories in OECD industrialized nations in March fell to 9 million barrels above the five-year average, down from 340 million barrels above the average in January 2017.

Here’s what sanctions on Iran could do to global oil supply and prices


Analyst: oil prices may rise $5 to $10/bbl if sanctions are reintroduced

A view of Tehran, Iran.



In a few days, the U.S. will decide whether to extend waivers on economic sanctions against Iran. If it doesn’t, the global market could lose about one million barrels of oil a day.

The Trump administration has until May 12 to make its move. The sanctions on Iran were lifted under a 2015 agreement among a group of world powers, including the U.S. and Iran, aimed at curbing Tehran’s nuclear activities.

Iran’s current oil production stands at 3.8 million barrels a day—up almost one million barrels since the sanctions were lifted, says Jay Hatfield, portfolio manager of the InfraCap MLP exchange-traded fund AMZA, +1.12%  . So if the U.S. decides to reimpose sanctions, the oil market could lose just under 1% of total global production, he says.

That doesn’t sound like much, but with the overall market facing an average deficit of 700,000 barrel per day, Matt Parry, head of long-term research at Energy Aspects, says that “any loss of Iranian supplies would add a significant premium to oil prices.”

James Williams, energy economist at WTRG Economics, believes that the amount of lost oil would be closer to 500,000 barrels a day, or perhaps less, depending on possible increases from other producing countries around the world, if sanctions are reinstated. “Certainly, other countries could make up the difference, but it would not be instantaneous,” he says.

Israeli Prime Minister Benjamin Netanyahu added a fresh twist in the run-up to the U.S. decision by offering what he claims is proof that the nuclear deal was based on lies, and accusing Iran of hiding a nuclear-weapons program.

Netanyahu’s accusations reinforce expectations that the U.S. will pull out of the nuclear pact and reinstate sanctions on Iran. It’s “still not 100%, but probably nearer to 80% that Trump will not extend” the sanctions waivers, Williams says.

On April 30, when Netanyahu presented his case, West Texas Intermediate crude futures CLM8, +1.99%  rose to a one-week high of $68.57 a barrel on the New York Mercantile Exchange. Brent futures LCON8, +1.87%  on ICE Futures Europe also saw a session high above $75 for the first time in almost a week.

President Donald Trump has said that Netanyahu’s speech validated his own view that the pact with Iran was flawed, but he was already “highly skeptical of the agreement,” says Hatfield, who sees a likely rise of $5 to $10 a barrel in oil prices if sanctions are reintroduced.

Still, Hatfield expects that the supply shortfall would be “made up partly by conservation spurred by higher prices and higher production from the U.S. and other producers.” There would also “be more incentive for OPEC members to cheat on,” or consider raising, their production quotas.

Those potential outcomes have helped to recently temper oil’s rise, with prices posting a loss for the last full week of April. On Thursday, WTI oil settled at $68.43 a barrel, up 0.5% week to date.

Anas Alhajji, a Dallas-based energy-market expert, believes that “even if the deal is ended and sanctions reimposed, the impact on the global oil market is limited.”

Alhajji expects that actual exports will probably decline “only marginally,” while “legal” exports might decline significantly. Iran might resort to its old strategy of “selling oil as if it were Iraqi oil, building massive floating storage, and using more oil in power generation and exporting oil embedded in electricity.”

The most significant impact of sanctions would be on Iran’s plans to increase oil-production capacity, so the long-term impact on the market could be higher than in the short term, says Alhajji.

And while Trump has shown some interest in modifying the nuclear deal, it is clear from Netanyahu’s speech “that Israel wants to end it,” he says. That could lead to even broader implications.

The decision on Iran “will affect the stability of the Middle East” and, as a result, oil prices, says Will Rhind, CEO of GraniteShares, an ETF firm.

A decision not to reimpose sanctions “may be more destabilizing, by sending a message to Russia and Iran that the U.S. does not support Israel’s strong intent to remove Iran from Syria,” he says. On the other hand, reimposing sanctions could reduce Iranian oil production and may “prevent Iran from continuing its actions in Syria, potentially preventing further hostilities” in the region.