Crude Trading Flat as J.P. Morgan Joins Analysts Who Predict Iran Supply Shock

India is set to buy Iranian oil. File Image / Pixabay

Friday marked the end of a particularly volatile week for crude that saw one massive uptick, one massive loss, and everything in between, and culminating in flat trading for the Brent and West Texas Intermediate benchmarks - with traders obsessed over what market impact the U.S. sanctions against Iran will have when they come into effect in November. 

Brent fell a mere 20 cents to $84.38, while WTI rose 1 cent to $74.34, these numbers said to be the outcome of the U.S. unemployment rate falling to a 49 year low of 3.7 percent and somewhat mitigating fears about the sanctions.

Phil Flynn, senior market analyst at Price Futures Group, summarized: "A strong economy, low unemployment would suggest the U.S. consumer is going to continue to fair well with higher energy prices."

All told, the Iran situation (along with the U.S. trade war with China) is largely responsible for a 15-20 percent rise in oil prices since mid-August, despite the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia repeatedly insisting they can ramp up to compensate for the loss of Iranian crude exports - and despite Friday's news that India will buy 9 million barrels of Iranian oil in November.

The situation is not helped by analytical prognostications that in some cases are extremely erratic, case in point: Goldman Sachs, which over the past week has changed its mind repeatedly about if other nations can make up for the Iranian shortfall and whether prices will or will not spike.

Friday saw the bank returning once again to a somewhat optimistic outlook, with the declaration (in a note to clients) that the global market will return "into a modest surplus in early 2019."

The latest expert to command the airwaves with a familiar take on what will happen in the near term was Abhishek Despande, head of oil market research and strategy at J.P. Morgan, who on Friday told CNBC, "For sure, the main reason for us to have a bullish outlook now is very strongly pivoted around the Iranian sanctions; it's really Iran that's going to cause supply shock," and he predicted that the outcome will cause Brent to reach the $90s and WTI to reach the $80s.

Despande went on to say what innumerable analysts have already said: that the big question is if Saudi Arabia has the ability to make up for the shortfall, and while he pointed out they might be able to ramp up appropriately in nine months' time, supplying enough oil in the near term is more problematic.

But he also conceded that higher prices over one to two years "will incentivize" the U.S. to increase production.

Earlier this week, Jonathan Barratt, chief investment officer at Probis Securities, offered the minority yet persuasive view that "at the end of the day, all of the players have the levers to put more supply onto the market; so we're only up here [price wise] in the short term in my view."