Total Joins Experts Who Think Iran Sanctions Will Push Oil to $100/bbl

Thursday September 27, 2018

Patrick Pouyanne, chief executive officer of French energy giant Total SA, joined the ranks of analysts who think the U.S. sanctions against Iran could cause crude prices to skyrocket to $100 per barrel, although he doesn't relish the prospect - for obvious reasons.

He said, "I'm not sure it's a good news" for the global economy, or "even for the oil industry, because you know, when price goes too high then you open the door to your competitors" and demand will fall.

Pouyanne is one of the latest experts who thinks oil will soon hit the triple digits; so too is Tamas Varga, senior analyst at PVM Oil Associates, who in a research note published Thursday blamed the recent decision by the Organization of the Petroleum Exporting Countries (OPEC) not to boost output as the trigger for the prospective price escalation.

He stated, "The unwillingness of the 25 producing nations to declare their intention to ramp up production in their effort to replace Iranian barrels all of the sudden produced a very tight supply and demand balance for the fourth quarter of this year.

"As a result, the talk is now [of] Brent reaching $100 a barrel this year."

Michael Tran, commodity strategist at RBC Capital Markets, predicted that "The lack of spare capacity will be the dominant market narrative over the coming months as OPEC seeks ways to mitigate losses in supply.

"While our long held, structurally bullish outlook remains tactfully in place, the pace of the supply outages may present further upside risk to our view."

Talk of $100 oil is so pervasive that presumably not much impact on the trading community will occur due to reports from unnamed sources that Saudi Arabia will quietly add extra oil to the market over the next couple of months, to offset the drop in Iranian production.

The sources told CNBC that the Saudis are ready - if demand warrants - to put as much as 550,000 additional barrels onto the market, with about 200,000 barrels per day (bpd) coming from its Kurais oil field.

As to why this wasn't considered as an option during OPEC's highly publicized meeting last weekend, the sources claimed that the Saudis realized "it would not secure agreement from all producers present at the talks, some of which lack spare production capacity and would be unable to boost output quickly."

From the Saudis' perspective, the worry is not of tight markets and $100 oil, but of oversupply: Khalid al-Falih, energy minister for the kingdom, earlier this week said he was concerned that oil production gains, mainly from the U.S., could outstrip a projected increase in oil demand and result in an inventory overhang globally.

Al-Falih based his worries on OPEC's latest monthly report, which forecast that its non-OPEC rivals led by the U.S. will increase output by 2.4 million bpd in 2019, while global oil demand should grow by just 1.5 million bpd.

For those who side with U.S. president Donald Trump that pumping more oil will result in lower prices for American motorists, the volume of extra output supposedly coming from the Saudis will do nothing to help them, according to John Kilduff, founding partner at Again Capital, who last week noted (when it was rumoured the Saudis would increase production by 500,000 bpd) that "The 500,000 barrels is sort of a clever way for the Saudis to placate Trump....it's not that big of a number: it shouldn't really sink prices materially, but it does throw the president a bone."