Oil on its way to $100
- It is driven by rising concerns about sanctions on Iran and a lack of preparedness by producers to hike output.
Driven by rising concerns about rigorous sanctions on Iran and an apparent lack of preparedness by major producers to hike output, oil climbed to a near four-year high, fuelling speculation on Wednesday that prices would cross $100 a barrel amid provocative statements from US President Donald Trump and a worsening geopolitical situation.
With crude exports from Iran, Opec's third-largest producer, already falling as the US sanctions are about to kick off, the benchmark Brent crude surged 38 cents on Wednesday to $85.18 a barrel after reaching $85.45 on Monday, its highest level since November 2014.
Analysts said the drop in exports is reducing the impact of an Opec production increase agreed in June.
Trump, who has been repeatedly demanding that Opec and Saudi Arabia push prices down with an urgent hike in output, further increased his pressure on the kingdom, saying that the Saudi king "might not be there for two weeks" without US military support. However, analysts are warning prices could go up to $100 a barrel as the world's production is already stretched and US sanctions on Iran's oil industry take effect in early November.
Opec has so far ruled out any further production increase, beyond delivering the boost agreed in June, despite prices rallying further and more pressure from Trump.
Russia's energy minister Alexander Novak said on Wednesday that the market has more or less stabilised but many uncertainties remain, including the sanctions on Iran, and could push prices higher.
Analysts are of the view that Brent crude could very well hit $100 a barrel before this year's end.
"Nobody wants to get caught short, full in the knowledge that more Iranian barrels are poised to be removed from the market," Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note.
Saudi Arabia, a critical swing producer with an additional 1.5 million bpd available to add to the market if required, is now expected to put as much as 550,000 additional bpd over the next couple of months.
Analysts said as oil producers are unable to fully offset global supply disruptions over the coming months, a supply shock and subsequent price spike in the final quarter of this year is inevitable.
"We are moving into a world where you have lower inventories, lower spare capacity and less protection for buyers," John Driscoll, chief strategist at JTD Energy Services, has been quoted as saying.
"So, $100 a barrel has become more likely, whether we get there or not, it might be a little early to say," he added.
Last month, oil exporters at their meeting in Algiers ruled out any immediate boost in crude output but reassured the market that they would do whatever is necessary to balance the supply.
The decision not to urgently increase output has helped to sustain the rally amid concern that there may not be enough spare production capacity in the short term to meet demand, potentially requiring large withdrawals from storage.
"Iran is the main supportive factor and is a test to the spare capacity of Saudi Arabia," said Olivier Jakob, analyst at Petromatrix.
Novak had ruled out the need for any immediate output increase, saying a trade war between China and the US as well as sanctions on Iran were creating new challenges for oil markets.
Opec had maintained a record level of output reduction compliance, often exceeding the required 1.8 million bpd to reach nearly 2.5 million bpd, according to BP's annual statistical review of world energy. Since 2017, collective efforts by Opec and allies in line with the landmark output cut pact, had led to a three-year revival in oil prices, which saw Brent surge to an $80 level towards the end of May, analysts said.
With crude exports from Iran, Opec's third-largest producer, already falling as the US sanctions are about to kick off, the benchmark Brent crude surged 38 cents on Wednesday to $85.18 a barrel after reaching $85.45 on Monday, its highest level since November 2014.
Analysts said the drop in exports is reducing the impact of an Opec production increase agreed in June.
Trump, who has been repeatedly demanding that Opec and Saudi Arabia push prices down with an urgent hike in output, further increased his pressure on the kingdom, saying that the Saudi king "might not be there for two weeks" without US military support. However, analysts are warning prices could go up to $100 a barrel as the world's production is already stretched and US sanctions on Iran's oil industry take effect in early November.
Opec has so far ruled out any further production increase, beyond delivering the boost agreed in June, despite prices rallying further and more pressure from Trump.
Russia's energy minister Alexander Novak said on Wednesday that the market has more or less stabilised but many uncertainties remain, including the sanctions on Iran, and could push prices higher.
Analysts are of the view that Brent crude could very well hit $100 a barrel before this year's end.
"Nobody wants to get caught short, full in the knowledge that more Iranian barrels are poised to be removed from the market," Stephen Brennock, oil analyst at PVM Oil Associates, said in a research note.
Saudi Arabia, a critical swing producer with an additional 1.5 million bpd available to add to the market if required, is now expected to put as much as 550,000 additional bpd over the next couple of months.
Analysts said as oil producers are unable to fully offset global supply disruptions over the coming months, a supply shock and subsequent price spike in the final quarter of this year is inevitable.
"We are moving into a world where you have lower inventories, lower spare capacity and less protection for buyers," John Driscoll, chief strategist at JTD Energy Services, has been quoted as saying.
"So, $100 a barrel has become more likely, whether we get there or not, it might be a little early to say," he added.
Last month, oil exporters at their meeting in Algiers ruled out any immediate boost in crude output but reassured the market that they would do whatever is necessary to balance the supply.
The decision not to urgently increase output has helped to sustain the rally amid concern that there may not be enough spare production capacity in the short term to meet demand, potentially requiring large withdrawals from storage.
"Iran is the main supportive factor and is a test to the spare capacity of Saudi Arabia," said Olivier Jakob, analyst at Petromatrix.
Novak had ruled out the need for any immediate output increase, saying a trade war between China and the US as well as sanctions on Iran were creating new challenges for oil markets.
Opec had maintained a record level of output reduction compliance, often exceeding the required 1.8 million bpd to reach nearly 2.5 million bpd, according to BP's annual statistical review of world energy. Since 2017, collective efforts by Opec and allies in line with the landmark output cut pact, had led to a three-year revival in oil prices, which saw Brent surge to an $80 level towards the end of May, analysts said.
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