Crude Hits New Highs, But Key Experts Downplay Talk of $100/bbl Oil

Some key experts have changed their minds repeatedly with regards to near-term forecasts. File Image / Pixabay

For those who see opportunities in high oil prices, Wednesday's market performance amounted to a windfall, with fears about the impact of U.S. sanctions on Iran oil exports yet again propelling U.S. crude to a four year high.

West Texas Intermediate settled up $1.18 at $76.41 per barrel, the highest closing price since November 21, 2014, while Brent settled up $1.49 to $86.29, its best closing price since October 2014.

Nothing other than the persistent fear from many analysts that nobody will be able to make up the shortfall in Iranian exports supported crude prices on Wednesday - indeed, crude earlier in the day was pushed lower when Khalid al-Falih, energy minister for Saudi Arabia, said the kingdom had raised output to 10.7 million barrels per day (bpd) in October and would pump more in November.

But assurances from several key producing countries of their ability to pump to new levels was nothing compared to the impact of analysts such as Olivier Jakob, managing director of Petromatrix, who said the Saudis' plan to pump more wouldn't make much of a difference: "Saudi is still very timid, the market wants to see something more proactive, that's why the market is not reacting very much to the different headlines."

John Kilduff, founding partner of Again Capital, pointed out that "There's sort of a fever building in the market right now about what the landscape is going to look like in terms of supply and demand"; however, unlike colleagues who forecast oil in the triple digits, he said the uncertainty will push U.S. crude prices up to $85, until new supply reduces the cost early next year: "I think the Saudis will ultimately step up, but they're going to be stingy at first; it's going to be a rough winter for consumers at the gas pump, at the heating oil tank, the airlines - everybody."

Even media seemed bewildered by the current oil market fever, and when asked how much of the Brent price at the moment is due to Iran supply outage and how much is due to political rhetoric, Fahd Iqbal, head of Middle East research at Credit Suisse Group AG, told Bloomberg television that "It's definitely both, they are both playing a pretty important role," adding that uncertainty over what will happen with Iran exports has caused pricing to be much more hawkish than warranted, and that "there is certainly politics here, and arguably this is playing a larger role."

Iqbal went on to note that after years of effort and expense getting rid of crude surplus, the Organization of the Petroleum Exporting Countries (OPEC) and its allies are "very cautious about how quickly they respond to market prices; they don't want to put too much oil on the market and put the market back to a situation where it's surplus once again."

Bloomberg pointed out that a reasonable assessment of prices in the near term shows crude hovering at $84 by year end and then lowering after that, and Iqbal replied, "We share that view...going into next year we're a bit more bearish because that process of inventory draw down has ended and in fact we're looking at a modest accumulation as we go into 2019; we don't think the current level can be sustained long term."

Goldman Sachs on Wednesday also doubted prices will hit the triple digits: Jeff Currie, global head of commodities research for the bank, said his organization believes Iranian exports will drop by about 1 million bpd to 1.4 million bpd, and that in this scenario Brent could settle back into a range between $70 and $80 per barrel before year end.

Currie also expressed confidence in more oil coming from the Saudis, Russia, and the U.S.: "I'm not saying there's not massive upside here, but I think we just have to be a little cautious here and think, 'Hey, it's not an unmanageable position.'"

While Currie's outlook seems reasonable at face value , it supports an argument that what is really ailing the crude market is excess analysis, much of which is inconsistent: earlier this week, Bloomberg took time to compare statements from Bloomberg on September 25 to those of October 2, and they revealed a 180 degree turnaround in outlooks on everything from the ability of other nations to make up for Iran's losses to the likelihood of prices escalating unchecked: Currie's comment on the Iranian situation not being unmanageable represents the second about-face the bank has made on the topic in the space of 8 days.