Iran sanctions seen keeping oil above $75, but 2019 demand outlook darkens: poll

FILE PHOTO: Oil pours out of a spout from Edwin Drake's original 1859 well that launched the modern petroleum industry at the Drake Well Museum and Park in Titusville, Pennsylvania U.S - REUTERS

Reuters: Oil is likely to stay above $75 a barrel, fuelled by supply disruptions exacerbated by US sanctions on Iran, but further gains could be limited as economists and analysts see demand growth slowing next year due to trade wars and economic weakness.

A survey of 46 economists and analysts forecast Brent crude to average $76.88 a barrel in 2019, up from the $73.75 forecast in September. The price is expected to average $74.48 in 2018, versus the $73.57 average so far this year.

Analysts who spoke to Reuters said demand is expected to decelerate in 2019, if concern over a widespread economic slowdown proves to be justified.

Overall, global oil demand is projected to grow by between 1.1 and 1.5 million barrels per day (bpd) in 2019, a range that generally falls short of the 1.4 million bpd forecast for next year by the Paris-based International Energy Agency in October.

Brent neared $87 a barrel earlier in the year following US efforts to isolate Iran through renewed sanctions, but prices have since edged off those highs and Brent is now around $76.

Analysts worry that there is a lack of spare capacity to deal with potential outages elsewhere once the sanctions take effect on 4 November.

“On the supply side, concerns (about) falling supplies from a number of OPEC producers - primarily Iran, owing to the renewed US sanctions - and also Venezuela, Angola, Libya and Nigeria, will maintain upward pressure on prices,” said Cailin Birch, an analyst at the Economist Intelligence Unit.

The US sanctions against Iran’s crude exports are expected to tighten supply, especially to Asia, which takes most of the country’s shipments.

Apart from Saudi Arabia and Russia, few producers can fill any gap left by Iran, according to Frank Schallenberger, head of commodity research at LBBW.

“I expect (Saudi Arabia and Russia) to raise output if necessary - as a shortage on the supply side and an even higher oil price could be a major risk to the global economy in 2019,” Schallenberger added.

Demand deceleration?   

Despite concerns about supply, analysts said headwinds to global growth could hurt demand in the coming year, particularly as the United States and China engage in a trade war that has imposed billions of dollars in tariffs on each other’s goods.

On Tuesday, at the Reuters Commodities Summit, Vitol Chief Executive Russell Hardy said the firm had lowered its outlook for oil demand growth to 1.3 million bpd from 1.5 million previously.

“Potential variables for global oil demand include US-China trade protectionist policies, emerging-market currency woes and the effects of tighter monetary policy,” said Benjamin Lu, a commodities analyst with Phillip Futures.

The IEA said world oil consumption would top 100 million bpd in the final quarter of this year, putting upward pressure on prices, although emerging-market crises and trade disputes could dent this demand.

Major producers led by the Organisation of the Petroleum Exporting Countries (OPEC) agreed in June to relax their oil production cuts, but the group said it may need to change course because of rising inventories and economic uncertainties.

Six of the analysts surveyed expected supply from non-OPEC producers to increase by an average 1.6 million bpd next year, mainly driven by gains in US shale output, which has been constrained by a lack of available transportation capacity.