Calls for $100 oil are back —’We’re nowhere near the end of this rally’

David McNew/Getty Images

• Iran supply fears will help drive oil “certainly” past $90
  and likely above $100 in the coming months, Richard Mallinson,
  energy and geopolitics expert and co-founder of Energy Aspects
  told Business Insider.
• Venezuela “played a really important role in accelerating the
  shift in the market” as well since 2016
• “We’re nowhere near the end of this rally,” Mallinson
  told Business Insider.
• Major oil traders in late September forecast oil at $100.
  Brent reached $85 per barrel today.

The price of oil will “certainly” go above $90 and is likely to
spike above $100 in the coming months, says one expert. And it’s
not just looming Iran sanctions driving supply
fears.  

“We’re nowhere near the end of this rally,” Richard Mallinson,
energy and geopolitics expert and co-founder of Energy Aspects
told Business Insider.

“Certainly Iran is in the spotlight, and I think its the main
driver of what we’ve seen over the last month or two, but
Venezuela played a really important role in accelerating the
shift in the market ever since – really 2016, when its production
started to fall.” 

Oil
has rallied to near four-year highs

Markets
Insider

Oil has been rallying as worries about Iran sanctions, which kick
in on November 4, threaten global supply. Forecasts for a rise in
Brent started mounting in late September, with oil-trading
giants including Mercuria Energy Group predicting $100 oil by the end of
the year while Trafigura Group said it expects it
to pass that threshold in 2019. Oil traders speculating on future
jumps in oil prices have also driven the price of options ‘calls’
higher. Oil today reached $85 a barrel and has been hovering at a
four-year high.

Venezuela is a much overlooked, but smaller, catalyst, he said.
US sanctions combined with the poor oil sector governance have
seen that country’s production drop by over a million barrels per
day, or 1% of global demand, which has left a hole in the global
supply.

But Iran is proving a bigger problem, Mallison said. Oil
exports have already been hit by the November 4 sanctions and
production is declining steadily to below 2 million barrels per
day in September, when they used to be an average of 2.7 million
per day.

The whole ecosystem of business involved in the physical trade
are making decisions whether they’re willing to continue being
involved in Iran or not, and the majority are saying no because
they’re afraid of being cut off from US markets, Mallison told
BI. 

Previously, low prices and concerns about slowing, long-term
demand has spooked investors from long-term oil supply projects,
he said, while sanctions on Venezuela and Iran which have
tightened the market further.

“Many companies have told us that banks and insurers and shipping
companies haven’t wanted to help them buy Iranian crude even
before the sanctions formerly take effect,” Mallison said,
because the US still haven’t made the rules of the sanctions
clear, so companies don’t want to fall foul of them.

“No buyers want to be in a situation where they have an Iranian
cargo still on the water sailing towards them when those
sanctions come in,” he added.

“It was clear this was going to happen but it’s uncomfortable for
the US because they still want to pursue this tough line against
Iran.
They don’t want domestic gasoline prices and fuel prices going up
too high over the midterms and that’s why you’re seeing Trump
leaning on Saudi Arabia, on OPEC, launching these tweets… because
they’re trying to find a way to contain oil price increases
without diluting the policy against Iran,” he added.

For the short term, Saudi Arabia is going to struggle to meet the
gap in demand that has been left, and in the coming months it is
likely to raise production to a near record 11 million barrels
per day, he said.

“That will offset some of the loss from Iran,” Mallison said.
“But it’s not a tap that can be opened overnight and that’s why
we see the tightest point for the market right now in the fourth
quarter.”