Traders Eye $100 Oil as Iran Sanctions Near
Remember, Remember the 5th of November
The price of oil is set to move higher.
Maybe a lot higher.
Right now, oil prices are trading at just over $72 per barrel. But prices closer to $100 per barrel are expected as U.S. sanctions cut supplies from Iran.
Mark this date on your calendar: November 5th.
The fifth of November.
The White House says countries must stop importing oil from Iran by November 5th. If they don't, they'll begin facing sanctions from America.
Washington's goal is to stop Iran from making money to fund nuclear or terrorist programs. Or at least that's its stated goal. Either way, sanction threats have already affected Iran's oil exports.
Trump first announced plans to slap sanctions on Iranian oil importers back in May. At the time, the market figured a cut of 300,000 to 700,000 barrels per day (bpd) to global supplies. But analysts say oil exports from Iran have already fallen by 580,000 bpd in the past three months.
The consensus now: Global supply cuts from the Iranian sanctions will range between 1.5 million and 2 million bpd.
And here's where we find the real highlight for investors...
The market doesn't have the supply response for that.
The largest source of new global oil supplies over the past several years has been U.S. shale. This is the result of new extraction technologies like fracking. But the American shale industry is now going through some growing pains. Pipeline bottlenecks, workforce issues, and declining CAPEX are all contributing to hampered growth.
U.S. shale supply growth is expected to fall to 1 million bpd in 2019. That's compared to 1.4 million bpd this year.
In addition to Iranian supply cuts and declining U.S. shale output, the market is also dealing with cuts in Venezuelan oil output. The economic crisis there has caused crude output to fall to 1 million bpd. That's down from 3 million bpd in 2011.
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To top it all off, new regulations on marine fuels are set to tighten supplies even further. Regulations set by the International Maritime Organization will force shippers to use fuels with lower sulfur content by 2020. Shipping is a major consumer of crude products. And this will lead to a sharp increase in demand for diesel and other low-sulfur fuels.
Meanwhile, demand still looks strong. The IEA puts world oil demand growth for 2018 at 1.4 million bpd and up to 1.5 million bpd next year.
According to OPEC’s Secretary General, global oil consumption will hit 100 million bpd this year. That's much sooner than previously expect. Mohammed Barkindo told an energy conference in South Africa’s Cape Town:
The world will attain the 100 million barrels a day mark of consumption later this year, much sooner than we all earlier projected. Therefore stabilizing forces which create conditions conducive to attracting investments are essential.
With no good response to Iranian supply cuts and healthy demand, the price of oil is set to move higher. And there are many major players already talking about $100 oil again.
With crude prices at just over $70 right now, traders should be looking into short-term oil positions.
There's almost a perfect storm brewing to move oil prices higher. Get prepared.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bubble and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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