Turmoil in Iran: Will It Push Global Oil Prices Higher?

A gas pump is seen hanging from the ceiling at a petrol station in Seoul

A gas pump is seen hanging from the ceiling at a petrol station in Seoul

Aside from the spike in May 2015, oil is trading at its highest since December 2014 - the month after a decision by Opec to stop cutting output to support prices, a move that deepened a price collapse.

The higher pricing is nearly entirely due to the withdrawal of about 1.8 million barrels a day in global crude oil supplies resulting from the OPEC-initiated production cuts.

The expected rise in stocks during the first half is one reason why OPEC and its allies think market rebalancing will not be completed until later in the year and agreed to keep their output unchanged.

Balancing the trend towards a tighter market is increased United States production, where the OPEC-led effort to drive up the price of oil is encouraging more shale oil output.

Potential supply disruptions have become more pronounced in recent months, as the global glut that plagued the oil market for years has steadily diminished.

IANS reported that the U.S. could become the oil world's new king in 2018 as it was poised to ramp up crude oil production by 10 per cent to about 11 million barrels per day. EIA data also shows New Mexico hitting a record high in monthly oil production, producing 16,367,000 barrels of oil while on pace to set an annual oil production record in 2017. This means United States supply is now close to parity with top producers, Russian Federation and Saudi Arabia, and, according to the IEA earlier in the year, will likely create a supply surplus in the first half of 2018.

The strength of demand growth has been the little-told story of the oil price recovery with consumption expanding by nearly 5m b/d between the start of 2015 and the end of 2017, compared with annual growth of well below 1m b/d when oil was above $100 a barrel.

Canada, Saudi Arabia, and Venezuela were the largest foreign suppliers of crude oil to the U.S.

Yet, surging US production could offset some of the cuts from OPEC producers, as USA production rose to 9.78 million barrels a day in the latest week, according to Wednesday's report.

US crude stockpiles have also dropped by around one fifth since their peak in March and ended 2017 at their lowest level since October 2015.

By the end of 2018, Saxo Bank sees Brent at $60 a barrel and WTI three dollars lower at $57 per barrel. Brent, the global benchmark, fell 35 cents, or 0.51%, to $67.72 a barrel on ICE Futures Europe.

Geopolitical risks in the Middle East will continue to fuel concerns about the stability of oil supplies.

What is sure is that the market is supported by many but temporary supply risks, that when resolved could bring back the prices to like $5-$10 lower.

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