Thanks to OPEC and Russia’s agreement to restrict supply, and rising world demand for crude, the Brent oil price has climbed past $82 a barrel, a big increase on the $56 prevailing at the same time last year and a four-year high. Also, the collapse in oil prices in 2014 initiated a profound shock to oil companies. Many subsequently cut their exploration budgets and slowed or even postponed some field developments, lending weight to the idea of a supply crunch to come because OPEC spare capacity is hovering at just 2 million barrels a day.
OPEC’s decision in June to boost output by 1 million barrels a day, to subdue price rises for the important U.S. holiday season, saw Russia’s oil production reach a post-Soviet record. However, OPEC’s recent decision to rebuff President Trump’s demand to increase output has caused crude prices to jump. What else is causing prices to rise?
Early purchases of oil to meet winter needs, and traders betting that the supply of oil may not be enough to meet demand in coming months, have perhaps injected momentum to the upward trend. Declining oil production in Nigeria and Angola hasn’t helped but the declines are most likely temporary. However, cuts in crude production in Venezuela will not be easily or speedily rectified and certainly not before the year-end. Simultaneously, the return of ISIS to Libya threatens a repeat of the large outages experienced last June, which, if not permanent could be extremely damaging to world supplies.
Arguably though, it is the forthcoming U.S. sanctions on Iranian oil exports starting Nov. 5 which could, according to the Financial Times, remove as much as 1.2 million barrels of oil a day from the world market. This cocktail of factors—namely, supply disruptions and OPEC’s low spare capacity coming together—could see oil go as high as $100 a barrel by Christmas. Read more https://www.rigzone.com/news/100_oil_by_christmas-03-oct-2018-157106-article/