Crude at $90 Coming Due to Iran Sanctions: BoAML

Crude prices rose again on Thursday. File Image / Pixabay

Concern over the impact on the global crude market of the U.S.-imposed sanction against Iran once again caused oil prices to rise: on Thursday West Texas Intermediate climbed 69 cents to settle at $73.45, after earlier in the session hitting $74.03 - the highest since November of 2014.

Mark Watkins, a regional investment strategist at U.S. Bank Wealth Management, summarized the motivation of the trading community by noting that "The sanctions are trying to isolate Iran a bit more, and that potentially cuts more oil off from the overall global arena as a whole.

"If you're having Iran's oil taken off the market, then you have a decrease in supply and by all means, that's going to put more pressure on the price of oil to move up."

But $74 for WTI may be peanuts compared to what may come, said Hootan Yazhari, head of frontier markets equity research at Bank of America Merrill Lynch: "We are in a very attractive oil price environment and our house view is that oil will hit $90 by the end of the second quarter of next year."

Yazhari went on to note that the market is rapidly heading into an environment where supply disruptions are occurring globally, "and of course president [Donald] Trump has been pretty active in trying to isolate Iran and getting U.S. allies not to purchase oil from Iran."

In a similar vein, analysts at Energy Aspects said in a note published Thursday, "Saudi Arabia is genuinely worried, perhaps even panicked, about supply losses from Iran - something it simply cannot be seen to say publicly - and the likely price spike that will result."

However, as is the case with the crude market itself, the outcome of geopolitical tensions are rarely predictable, and it's difficult to state with any certainty what will happen with Iran in the near future, especially considering most major importers of Iranian crude have balked at Washington's almost unilateral policy towards the Islamic republic.

Also, CNBC pointed out that not all indicators point toward an ever-tightening market: "U.S. crude production is approaching 11 million barrels per day (bpd), and Saudi Arabia expects to match that in coming months as well."

Plus, the Organization of the Petroleum Exporting Countries (OPEC) is reportedly preparing to sign onto a new crude output deal, this time for 2019, which would presumably allow the cartel to turn on the taps if need be to compensate for as yet unforeseen shortages.