Published: Tue, May 15, 2018
Business | By Kate Woods

Goldman Sachs says oil prices are going to spike

Goldman Sachs says oil prices are going to spike

Michael Wittner, analyst at Societe Generale, forecasts USA sanctions will remove 400,000 to 500,000 barrels per day of Iranian crude from the global market.

Ignoring pleas by allies, US President Donald Trump on Tuesday pulled out of an worldwide nuclear deal with Iran that was agreed in late 2015, raising the risk of conflict in the Middle East and casting uncertainty over global oil supplies. "We expect that around October Iranian exports will be down by 500,000 barrels per day (bpd) and eventually fall by 1 million bpd in 1H19", U.S. investment bank Jefferies said in a note on Friday.

"The market is now focused on OPEC and other producers' ability to react to this potential supply disruption", ANZ bank said on Friday.

The People's Republic stands to benefit if it can use its leverage as the world's largest importer of crude by insisting that its oil purchases from Iran be priced in yuan.

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The surge in oil prices comes at a time of tight supply amid record Asian demand and voluntary output restraint by the Organization of the Petroleum Exporting Countries and non-OPEC producers including Russian Federation. Iranian crude oil is something India looks up to.

John Kilduff, founding partner at Again Capital, summarized the familiar motivations of traders by saying, "It's the same witches brew of bullish stuff: Iran, Venezuela, the lack of alacrity by Saudi Arabia to bring more oil onto the market" to compensate for the expected drop in Iranian crude exports in the next few months.

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Brent crude futures rose 27 cents to $77.48 a barrel Thursday, having gained 3.5% so far this week, Reuters reported. The International Energy Agency has said "with just under half of global oil supply subject to restraint and oil demand growing steadily, the impact on stocks has been substantial".

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US West Texas Intermediate (WTI) crude futures were down 15 US cents, or 0.2%, at US$71.21 a barrel after hitting a November 2014 high of US$71.89 per barrel on Thursday.

The US says firms have six months to halt business and can not enter into new contracts or they will face sanctions.

This is the first time Chile has imported Iranian crude in nearly 18 months, according to data from S&P Global Platts trade flow software cFlow. "Oil prices could rise at least $10 (a barrel), with Brent approaching near $90", Akuta said.

This would make the United States the world's largest producer, ahead of both Russian Federation and Saudi Arabia.

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