The impact of oil at $100 per barrel

The impact of oil at $100 per barrel
Global oil reserves have diminished by around 360mn barrels since the start of 2017.
Published: 1 October 2018 - 5 a.m.
By: Carla Sertin

As oil prices creeped past $80 per barrel last week, the highest in almost four years, major oil trading house forecast oil at $100 per barrel.

This follows US sanctions on Iran, which, in addition to Venezuela's economic crisis, have left OPEC scrambling to hit target output.

“The market does not have the supply response for a potential disappearance of 2 million barrels a day in the fourth quarter,” Mercuria Energy Group Ltd. co-founder Daniel Jaeggi said, according to Bloomberg. “In my view, that makes it conceivable to see a price spike north of $100 a barrel.”

When US President Trump announced in May that sanctions would be reimposed on Iran, "the market estimated a cut of about 300,000 to 700,000 barrels a day," Bloomberg reported, citing Trafigura Group co-head of oil trading Ben Luckock. Now, estimates have shot up to as many as 1.5mn barrels per day.

Luckoc reportedly said oil could hit $90 by Christmas and $100 by early 2019.

“Our plan is to meet demand,” said Saudi Energy Minister Khalid Al-Falih, according to Bloomberg. “The reason Saudi Arabia didn’t increase more is because all of our customers are receiving all of the barrels they want.”

Higher oil prices are typically bad news for oil importers, like Europe and China, which could see inflation as a result of rising prices. However, the shale revolution in North America has provided them with a safety net, despite hurdles with pipeline bottlenecks.

Bloomberg Economics reported that $100 oil would "do more harm than good to global growth." However, it noted that today's economy is different than in 2011.

“The shale revolution, lower energy intensity, and higher general price levels mean the impact will be smaller than it once was,” wrote economists led by Jamie Murray in a recent report, Bloomberg reports. “The price of a barrel will have to go much higher before global growth slips on an oil slick.”

For oil producing nations like Saudi Arabia, higher oil prices should come as a relief as privatisation plans to support government liquidity have slowed and Saudi Aramco's IPO has been put on hold.

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