Ukraine war, Iran nuclear deal hitch to keep oil prices up

The fallout of Russian crude oil sanctions and delays in the renewal of the Iran nuclear deal will continue to keep oil prices at around $110 per barrel this year, according to oil market experts from leading banks and an energy institution.

Citing the fallout from the Russia-Ukraine conflict, analysts from two international banks — Citi and Barclays — have raised their oil price forecasts while the US Energy Information Administration’s (EIA) latest short-term energy outlook projects that the Brent spot price would average $107.37 per barrel this year and $97.24 per barrel in 2023.

The EIA’s previous energy outlook, which was released in May, forecasted that the Brent spot price would average $103.35 per barrel in 2022 and $97.24 per barrel in 2023.

“The Brent crude oil spot price averaged $113 per barrel (b) in May. We expect the Brent price will average $108/b in the second half of 2022 (2H22) and then fall to $97/b in 2023. Current oil inventory levels are low, which amplifies the potential for oil price volatility. Actual price outcomes will largely depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market,” said the EIA.

The UAE’s Energy Minister Suhail Mohammed Faraj Al Mazrouei has warned that oil prices are “nowhere near” their peak as an impending rise in Chinese demand threatens to strain a global market already pinched by tight supplies, Mazrouei warned that without more investment across the globe, Opec plus can’t guarantee sufficient oil supplies as demand fully recovers from the coronavirus pandemic. Prices can reach “unseen” levels if Russian oil and gas is completely taken off the market, he said.

Citi Research raised its oil price forecast due to heavy delays in securing another Iranian nuclear deal, which will contribute to the tight market conditions for crude oil.

Citi now sees sanction relief for Iran coming in the first quarter of 2023, adding 500,000 bpd in the first half and 1.3 million bpd over the second half. This is in contrast to its previous forecast, which assumed Iranian sanctions relief—and therefore additional crude oil—would come sometime mid-2022. Now that we are already in mid-June and the talks appear to have stalled, Citi’s previous scenario looks highly unlikely.

Citi’s second-quarter 2022 Brent forecast is now seen at $113 per barrel—up from $99 per barrel in its previous forecast. Citi also raised its Q3 and Q4 forecast to $99 and $85 per barrel, respectively. For 2023, Citi lifted its Brent price forecast to $75—up $16 per barrel.

Barclay’s also lifted its price forecast citing crude oil sanctions on Russia by the EU. Barclays now sees Brent prices averaging $111 this year and next—an increase of $11 for this year and $23 for next year. Barclay sees WTI at $108 for both years.

— issacjohn@khaleejtimes.com