Top Traders Highlight Oil Price Uncertainty with Trafigura and Others Forecasting Prices Anywhere from $65-$100/bbl

Wednesday October 10, 2018

As Wednesday saw crude prices drop dramatically due to sudden concerns about oversupply and waning demand, it was unsurprising that some experts would warn of "extreme volatility" for prices due to the U.S. sanctions against Iran.

Bob Dudley, CEO at  BP, said, "I think it's going to be 45 days of extreme volatility, it could spike up, it could also go the other way," the latter scenario occurring "if waivers [from the U.S.] were granted to others, to big oil consuming countries" that would allow them to import Iranian crude.

BP is reportedly planning on a cycle of oil prices at $60 to $65 per barrel: "We've been through this period of really low prices and they're up again and we can't plan on these high prices right now," Dudley explained.

Dudley reinforced the notion held by many experts that the crude market is at the mercy of emotions rather than logic, and this view was upheld by Ian Taylor, group chairman at Vitol, who told Bloomberg television that "We don't have a supply squeeze, there's plenty of oil around," but that Iranian exports of crude "will be much reduced" not so much by clear cut supply and demand fundamentals, but by a severe "fear factor" that has compelled traders to drive prices up to $85 per barrel.

For the record, Taylor predicted prices at $65 in a year's time.

In a similar vein, Jeffrey Currie, global head of commodities research and partner at Goldman Sachs - which in recent weeks has expressed conflicting opinions about where the crude market is heading - told Bloomberg television that the forecasts of many analysts of crude reaching the triple digits due to the loss of Iranian exports is "not justified yet."

He added, "This market is not in a red zone; fundamentally, today, this market is relatively well supplied," and that given so many unknowns about how much Iranian crude will be lost and to what extent other nations can make up the shortfall, "I think it's a little premature at this point to be getting that concerned."

He also noted that triple digit prices "would require a sustainable outage in Iranian exports going down to zero plus another disruption someplace like Venezuela; the way we're seeing it is long dated oil prices are rising, the front-end is weakening which is telling you that hey, we don't have a problem today, we potentially have a problem tomorrow."

Still, oil traders generally agreed that the Iran sanctions are hitting harder than expected, with Jeremy Weir, chief executive officer of Trafigura Group Pte. forecasting 2 million barrels per day (bpd) lost to the market and Vitol and Gunvor Group pegging the volume closer to 1 million bpd.

Torbjorn Tornqvist, CEO of Gunvor, and Weir disagreed with Taylor's price outlook, stating that crude futures could reach $100 or higher either by year end or next year; meanwhile, Alex Beard, chief executive for oil and gas at Glencore, predicted oil would reach $85-$90 per barrel.

Despite the disagreements, there seems to be a subtle shift in the analytical community from outright hysteria over the Iran situation to a growing appreciation of emotions dictating market prices: this was expressed earlier this week by Patrick Pouyanne, chief executive of Total, who remarked, "The market is well supplied; inventories are continuing to grow...prices are high not because of demand but because of political issues."