- Oil prices have surged more than 25 percent this year, prompting investors to bet that a return to triple-digits could be just around the corner.
- President Donald Trump’s administration is scheduled to impose crude sanctions against Iran from November 4.
- “Overall we would put an oil shock in the top three of our concerns over the next year along with trade wars and the ‘exit-sential’ risks in Europe,” economists at Bank of America Merrill Lynch said.
The prospect of an abrupt supply shock in the energy market is making investors increasingly nervous about the possibility of oil prices soaring above $100 a barrel before year-end.
Oil prices have surged more than 25 percent this year, prompting investors to bet that a return to triple-digits could be just around the corner.
It comes as market players closely monitor a flurry of supply concerns, with looming U.S. sanctions against Iran, bottlenecks building in the U.S. shale industry and the collapse of Venezuela‘s economy all intensifying an upside risk in the market.
Sensitive market conditions
Cailin Birch, senior commodities analyst at the Economist Intelligence Unit, told CNBC on Thursday that crude futures appeared uniquely “sensitive” to market commentary at present, “with policy and messaging having an exaggerated impact on prices.”
“And, clearly, what is particularly important right now is the prospect of Iranian sanctions,” Birch said.
President Donald Trump‘s administration is scheduled to impose crude sanctions against Iran from November 4. The sanctions are widely expected to have an immediate impact on OPEC‘s third-largest producer, although estimates of exactly how much of the country’s oil could disappear vary widely.
Some energy market analysts expect around 500,000 barrels per day (bpd) to disappear once U.S. sanctions against Iran come into force, while others have warned as much as 2 million bpd could come offline over the coming weeks.
Washington has also ratcheted up the pressure on global buyers of Iranian crude by demanding they completely cut-off the Islamic Republic. The move is part of a sustained effort to undermine Iran’s crude industry, in a bid to force the country to negotiate a new nuclear agreement.
However, the U.S. has since said it could consider exemptions for countries that have already shown efforts to reduce their imports of Iranian oil.
When asked whether the Trump administration’s recent suggestion of possible waivers and exemptions had fuelled market uncertainty, Birch replied: “Definitely. This kind of mixed messaging is just one step forward and then one step back.”
Biggest losers
“Putting everything together, we think $100 oil could take two tenths off global growth in 2019. This is not a major impact, but it isn’t trivial either,” economists at Bank of America Merrill Lynch said in a research note published Friday.
On Tuesday, the International Monetary Fund (IMF) cut its global economic forecasts for 2018 and 2019 by 0.2 percentage points to 3.7 percent. The Washington D.C.-based institute also raised concerns that demand for oil may slump over the coming months.
“The countries that stand to lose from higher oil prices have historically been much more systemically important to the global economy and financial markets than oil exporters,” said Bank of America Merrill Lynch’s Ethan Harris and Aditya Bhave.
This means that – while the U.S. has become better protected by a recent shale boom, the euro area, Japan, China and India would “stand to lose significantly from a spike in oil prices.”
Analysts at the Bank of America Merrill Lynch expect economic growth in the euro area, U.K. and Japan to be depressed by as much as 0.5 percentage points if oil prices spike to $100 a barrel by year-end – and remain close to that level throughout 2019.
Weakness in developed Europe would then most likely “exacerbate the shock” to central and eastern Europe, while other emerging markets that would probably “see weaker growth by a few tenths include India, Chile, Peru and the Dominican Republic,” the bank said.
Who wins at $100 a barrel?
Oil producing countries are widely expected to be the biggest beneficiaries if oil prices climb towards triple digits.
“Assuming no new sanctions, we would expect 1.8 percent GDP growth in Russia next year, compared to our baseline of 1.2 percent,” economists at Bank of America Merrill Lynch said.
“In Saudi Arabia, much will depend on how much of the oil windfall revenue gets spent by the government. In the extreme case, if it is all spent, non-oil real GDP growth could increase by nearly 1 percent,” they added.
Meanwhile, investment in the oil and gas sector could see Colombia’s growth rate accelerate by 0.6 percent, the analysts said, while Malaysia would most likely be one of the very few beneficiaries in Asia.
Selling opportunity
“Trump’s sanctions have raised the stakes, and the market is now driven by fear,” Konstantinos Venetis, senior economist at TS Lombard, said in a research note published Monday.
“But at this juncture we think it makes sense to lean against further oil price strength instead of chasing this rally. And if we see $100 on short notice, it would probably be as good a selling opportunity as in July 2008,” he added.
Oil prices skyrocketed to record highs in July 2008, reaching levels of around $147 a barrel before plummeting down to below $30 as the global economic crisis began to bite.
International benchmark Brent crude traded at around $81.44 on Thursday, down around 2 percent, while U.S. West Texas Intermediate (WTI) stood at around $71.85, more than 1.8 percent lower.
“Overall we would put an oil shock in the top three of our concerns over the next year along with trade wars and the ‘exit-sential’ risks in Europe,” economists at Bank of America Merrill Lynch said.
makati1 on Sat, 13th Oct 2018 7:04 pm
The oily market is still guessing. Gotta keep those suckers … er … investors on the sinking ship until all of their blood is drained. Collapse is coming. The Fed raising the interest rates will be the match to the powder keg.
The likely crash domino will be the huge debt in America. The serfs have almost reached their borrowing limits and interest is rising. Housing and car sales are tanking. Big box stores are closing by the hundreds. I would say Christmas buying (more debt) will push many more into default next year. $100+ oil? Bring it on!
onlooker on Sat, 13th Oct 2018 7:19 pm
$100 oil will affect all consumers around the world adversely. The inevitalbe rise in interest rates are usually done in unison by all the central banks so the repurcussions will be global affecting all overleveraged entities. The entities being so many people, companies and governments globally over indebted
makati1 on Sat, 13th Oct 2018 7:33 pm
And you are aware that the Ps Debt is only 42% of GDP vs the US’ at 106+%, onlooker?
https://www.ceicdata.com/en/indicator/philippines/government-debt–of-nominal-gdp
A Filipino uses about ONE PINT of oil whereas, an American uses over TWO GALLONS per day. Who is going to hurt more?
There are over 185 countries in the world and to say that they will all be affected equally is just ignorance of facts. Or arrogance, in the case of ‘exceptional’ Americans.
https://www.indexmundi.com/map/?v=91000
onlooker on Sat, 13th Oct 2018 7:47 pm
No Makati, didn’t say equally. Simply that those who ARE overleveraged will be affected. Surely, you will concede that overindebted entities exist in other places besides the US?
Anontarded1 on Sat, 13th Oct 2018 8:14 pm
aswang, so you say numbers alone matters? i beg to disagree. i’m not sure whether duterte really put a stop to it but there are so many phils women being enslaved in the ME. i happen to know one of such cases myself. so if you like yoru figures you can keep them.
Anontarded1 on Sat, 13th Oct 2018 8:17 pm
aswange, things like this are constantly on the news
https://gulfnews.com/news/gulf/kuwait/kuwait-influencer-not-sorry-for-filipino-worker-remark-1.2255987
this is because phils have no powa projection overseas. supertards can launch tomahawk anywhere and can use shekles to effect policy changes. no thanks, if you like phils you keep your suicide shower. i’m keeping my supertards ktnx
makati1 on Sat, 13th Oct 2018 8:52 pm
Onlooker, of course there are. I only picked out the US as one of the worse debtors and the one causing so much damage around the world. I want it to be knocked to its knees so it cannot continue. I think that is already in progress. I hope it accelerates.
makati1 on Sat, 13th Oct 2018 9:06 pm
Atard, and the US can be incinerated in minutes by nukes from Russia. So what? The Ps is not anyone’s target. It is not important to have a military when you have no real enemies. China is not an enemy of the Ps. Only the US is pissed because Duterte told the US to fuck off and turned to China and Russia. You live in a police state, not me.
As for ME problems, you may “know” of one such but in what capacity? Someone said? Actual witness to the act? Participant? What? You can claim anything on the internet can’t you? Proving it is a whole different story.
And how many “enslaved” women are there in America? Depends on the definition, doesn’t it? Prove that it doesn’t happen in the US.
“This map shows where the world’s 30 million slaves live. There are 60,000 in the U.S.”
https://www.washingtonpost.com/news/worldviews/wp/2013/10/17/this-map-shows-where-the-worlds-30-million-slaves-live-there-are-60000-in-the-u-s/?noredirect=on&utm_term=.4679406a9abc
You and Davy are delusional and so Amerocentric it is an illness. Maybe you ARE Davy? That would explain your insanity.
Anontarded1 on Sat, 13th Oct 2018 9:28 pm
please aswange (pbuh swt), the problem with MAD is well known and it’s no longer on the media in the US anymore so I don’t fear it any longer. skip the BS. I can head straight to larouche PAC for fear pr0n if i want to OK?
ask eurotard (pbuh swt) he said nukes are fake
makati1 on Sat, 13th Oct 2018 9:57 pm
Atard, your denial of possibilities is more proof of your insanity. MAD is history. The US elite wants war and will have it one way or another. It cannot survive without a real big one soon.
That it will eventually go nuclear is 100% sure as neither the US, Russia, nor China will back down. The only thing that may save you is if the US crashes and burns and has a bigger problem at home than abroad before they can trigger WW3. That is my hope.
Outcast_Searcher on Sat, 13th Oct 2018 10:03 pm
Makati should try making accurate doom predictions far more often before predicting things “100 sure”. What a clown. LOL
makati1 on Sat, 13th Oct 2018 11:43 pm
Outcast, the collapse is all around you. It has been happening since 2008. Get real.
As for a WW3 scenario, of course it will go all out by the end. How did the war with Japan end in 1945? With firecrackers? No, with nukes. The next one will surely be nuclear, if the US is not destroyed financially before it can happen.
You do not know your history if you don’t know that every major war ends with the newest weapons being used. Why else make and keep them?
Russia: Total nuclear weapons: 7,300.
United States: Total nuclear weapons: 6,970.
China: Total nuclear weapons: 260.
India: Total nuclear weapons: 110 to 120.
Israel: Total nuclear weapons: 80.
France: Total nuclear weapons: About 300.
Pakistan: Total nuclear weapons: 110 to 130.
United Kingdom: Total nuclear weapons: 215.
North Korea: Total nuclear weapons: Unknown.
https://www.nbcnews.com/news/world/fact-sheet-who-has-nuclear-weapons-how-many-do-they-n548481
What makes you believe that WW3 will NOT be nuclear?
makati1 on Sun, 14th Oct 2018 1:05 am
Waiting for your informed, intelligent rebuttal, Outcast….
Davy on Sun, 14th Oct 2018 5:34 am
“Makati should try making accurate doom predictions far more often before predicting things “100 sure”. What a clown. LOL”
You nailed it OS
Davy on Sun, 14th Oct 2018 6:26 am
“Market Crash? Another ‘Red Card’ For The Economy”
https://tinyurl.com/yaxrgozs
“The first thing we must understand is that we are not facing a panic created by a black swan, that is, an unexpected event, but by three factors that few could deny were evident: Excessive valuations after $20 trillion of monetary expansion inflated most financial assets. Bond yields rising as the US 10-year reaches 3.2% The evidence of the Yuan devaluation, which is on its way to surpass 7 Yuan per US dollar. Global growth estimates trimmed for the sixth time in as many months.”
“What we are experiencing is the evidence of the saturation of excesses built around central banks’ loose policies and the famous “bubble of everything”. And therein lies the problem. After twenty trillion dollars of reckless monetary expansion, risk assets, from the safest to the most volatile, from the most liquid to the unquoted, have skyrocketed with disproportionate valuations. Therefore, a dose of reality was needed. Monetary policy not only disguises the real risk of sovereign assets, but it also pushes the most cautious and prudent investor to take more risk for lower returns. It is no coincidence that this policy is called “financial repression“. Because that is what it does. It forces savers and investors to chase beta and some yield in the riskiest assets.”
“In the first three months of 2018, global debt rose 11% to a record of 247 trillion dollars (according to the IIF), and that of emerging markets soared by 2.5 trillion to an all-time high of 58.5 trillion. When the lowest risk bond, the United States 10-year, went to 3.1%, the synchronized growth and complacent veil lifted, and t many assets showed how risky they truly are. Markets woke up to a reality that we had decided to ignore. That rates do rise. And if the safest bond gives a return of 3.2% … Am I willing to buy bonds from much riskier countries with negligible spreads? Add to that “sobriety” effect, another one. The inevitable devaluation of the yuan , which soared to almost 7 against the dollar. Am I willing to buy emerging markets and commodities when China exports its imbalances sending disinflationary pressure to the rest of the world? One, the US 10-Year, shows us the risk in the assets that we perceive as “safe”. And the other, the yuan, reminds us that China exports global disinflation and warns of impossible growth expectations. This reminds us that this time is not different. It is the same as all the previous ones. A bubble created from monetary policy gives way to a deep hangover .”
“Given that it is more than likely that central banks will continue to Japanize the economies through financial repression, these “red cards” are becoming more frequent and, in addition, there comes a point at which the saturation of monetary and debt measures stops working even as a placebo.”
“When societies are based on incentivizing spending and debt and not saving and prudent investment, we are always going to throw ourselves into a bigger problem based on the conviction that nothing is happening. When it bursts, governments and central banks will blame anyone except themselves. And repeat.”
Davy on Sun, 14th Oct 2018 6:28 am
This one is for billy and neder our board economic wizards. Chew on this boys and get back to me how the US is going down and your home boys are rising. LOL
“None of the eurozone countries’ sovereign debt yields show a realistic combination of risk and return. With 19 countries yielding negative real returns, the evidence that there is no real demand for those bonds at these levels is that the ECB is considering an “operation twist” to avoid the inevitable reckoning of rising real yields as the quantitative easing unwinds. In Europe, no investor would buy bonds of the eurozone states with these coupons in a normalized environment. This has led to higher risk assets in fixed income discounting a spread of only 290 basis points over a sovereign bond that is already massively inflated. That is the creation of a huge bubble instigated by central banks with its reckless policy of ignoring the risks that they encourage in the markets.”
“When China devalues the yuan and introduces the biggest tax cut in 38 years and a constant monetary stimulus to bail out its banks, what is it really telling us? That everything is fine? No, that things are not going well with the Asian giant No economy launches a massive undercover bailout of the financial sector, cuts rates and implements huge tax cuts as well as devaluing if everything goes smoothly.”
“Market Crash? Another ‘Red Card’ For The Economy”
https://tinyurl.com/yaxrgozs
Sissyfuss on Sun, 14th Oct 2018 9:27 am
The bottleneck is real and is observable on the horizon. How does humankind propose to deal with resource depletion and climate disruption? By increasing the human population and elevating the masses to higher consumption oriented lifestyles. Our cancerous behavior would be considered suicidal and homicidal except that the large majority believe growth to be the answer to our predicament. We lemmings grow so thick that you cannot escape from the moving mass the heads inexorably towards the cliff.
woodlice on Mon, 15th Oct 2018 2:52 am
Sissyfuss – Spot on the insanity of forced population growth as god in Anglo nations Aust, Nz Can is past human understanding one lil shock – energy being it and these nations will spiral into social unravelling, racial hatred and disorder with lil water / food and no employment. I get a vision of Maj riding the bomb.
makati1 on Mon, 15th Oct 2018 3:47 am
Davy:
US’ GDP growth in 2017: 2.3%
China’s growth in 2017: 6.9%
Phil’s growth in 2017: 6.7%
The Us is barley holding it’s head above water. Asia is surfing.
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
BTW:
Cambodia: 6.8%
India: 6.6%
Indonesia: 5.7%
Bangladesh: 7.3%
Bhutan: 6.8%
Malaysia: 5.9%
Mongolia: 5.9%
Thailand: 3.9%
Vietnam: 6.8%
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
Meanwhile, the West, and its wannabees, cannot get to 3% growth, even by lying. LMAO.
Davy on Mon, 15th Oct 2018 5:21 am
““US’ GDP growth in 2017: 2.3% China’s growth in 2017: 6.9% Phil’s growth in 2017: 6.7%
Billy does not know the difference between a developed economy and a developing economy. I rest my case, no need to elaborate. Geeze