$100 Oil Back in Focus

Crude’s relentless push higher is set to continue for the rest of the year and possibly into 2019, making $100 a barrel oil a distinct possibility. Once considered outlandish in the post-crisis shale era, the prospect of triple-digit crude is being emboldened by classic supply constraints and rising international demand.

The Return to $100?

Oil merchants, trading houses and Wall Street banks have joined a growing chorus of market players forecasting an explosion in crude prices. With U.S. sanctions on Iran set to bite, outages in the Islamic Republic are said to be worse than most analysts had predicted. Venezuela too is compounding OPEC’s production constraints following the collapse of the country’s ultra-socialist system. In the United States, now the world’s largest oil producer, shale patch bottlenecks could place further pressure on supplies. At the same time, new regulations from the International Maritime Organization could put a major damper on production heading into 2020.

Against this backdrop, Bank of America Merrill Lynch predicts that “the likelihood of an oil spike and crash scenario akin to the one observed in 2008 has increased.” The bank recently pegged Brent futures at $95 a barrel by the end of the second quarter. A decade ago, the global oil benchmark peaked near $150 a barrel.

The resumption of U.S. sanctions on Iran could knock out almost 2 million barrels per day from global supplies, according to commodity merchant Mercuria Energy Trading. The shortfall is expected to materialize by the end of 2018. Analysts had previously expected a shortfall of about 300,000 to 70,000 barrels per day, according to Trafigura Luckock.

“We’re on the verge of some significant volatility in Q4 2018 because depending on the severity and duration of the Iranian sanctions, the market simply does not have an adequade supply response for a 2 million barrel a day disappearance of oil from the markets,” said Daniel Jaeggi, president of Mercuria. In his view, $100 a barrel oil is a strong possibility.

While OPEC and other producers are considering raising their production caps by 500,000 barrels per day, this alone won’t be enough to overcome the shortfall.

Market Update

Crude prices, rising steadily since 2017, recently notched fresh four-year highs on London’s ICE futures exchange. Brent, the international benchmark, crossed $82 a barrel on Monday on expected supply constraints.

Oil futures declined on Wednesday after the U.S. Energy Information Administration (EIA) reported an unexpected build in commercial crude inventories. EIA, which is the official data source, showed a 1.852 million-barrel increase in supplies for the week ended Sept. 21. Analysts had forecast a drawdown of 1.279 million barrels.

Separate figures released on Tuesday by the American Petroleum Institute showed a stockpile accumulation of 2.903 million barrels for the same week.

U.S. West Texas Intermediate (WTI) futures fell 65 cents, or 0.9%, to $71.63 a barrel on the New York Mercantile Exchange. Brent barrels declined by 61 cents, or 0.8%, to $81.26.

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Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi