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Fear Driven Oil Price Rally won't last



In the past week, oil prices have risen with regard to rising US-Iran and Iran-Saudi standoffs have overshadowed bearish side concerns about US and China trade wars and slowed global economic growth.

The rising tension in the Middle East and the critical oil tanker waterways in the region has brought some analysts and investment banks back to talking about Brent Crude, which hits US $ 80, US $ 90, or even US $ 100 a barrel, compared to today's level of around US $ 72 per barrel.

However, JP Morgan believes that the return of the geopolitical risk premium in the oil price could only be in the short term, as US slate production continues to grow, while global oil demand may fall off world uncertainty.

"It is difficult to ask why oil prices are rising significantly from here," said Scott Darling, Asia Pacific Oil and Gas Research Manager at JP Morgan on CNBC Monday, although he admitted that it is okay to assess the risk of supply failure given the current geopolitical situation.

US slate has dramatically cut the market cycle for oil, so geopolitical risks may be short-lived, Darling told CNBC.

JP Morgan sees Brent Crude at $ 75 a barrel at the end of June, but expects global oil targeting to average $ 71

this year and to go down to $ 60 in 2021, according to Darling. Related: Iran's Trick to Sell Oil for a 30% Premium

At the beginning of this month, just as the US sanction waives all Iranian oil buyers, expired, Christyan Malek, head of EMEA oil and gas research at JP Morgan, Bloomberg told Brent Crude prices to move toward the US $ 80 handle at some point this summer, due to stronger fuel demand in the summer and OPEC as "far more measured" in terms of their response at the end of Iranian dispensations and Venezuelan closure production.

One week after the end of US sanctions for Iranian customers, Helco Croft, Global Commodity Strategy Manager at RBC Capital Markets, said "The ability for Iran to restore its nuclear program and tensions around key strategic waterways such as the Hormuz Strait and the Yemeni The coast could lead to Brent crude oil, which is expected to average $ 75 a barrel in 2019, passing $ 80 mark this summer. "[Last week, attacks on Saudi oil infrastructure attacked oil prices and increased geopolitical tensions that led to some investments] banks are projecting much higher oil prices this summer.

If the US and China solve their trade dispute, thereby shedding the prospect of global economy and demand for oil, an event in the tense Middle East region could cause oil prices to shoot up to US $ 100, Francisco Blanch, head of global commodities and Derivatives at the Bank of America Merrill Lynch told CNBC last week. Blanch expects Brent Crude to hit US $ 82 this summer.

Later last week, Bank of America Merrill Lynch said that the new sulfur freight fuel rules could push Brent as high as $ 90 a barrel, but warned that all outbound trade war can send prices down to as little as US $ 50 if it leads to an economic downturn.

In all these contradictory signals in the market, OPEC and its allies have decided to decide next month how to proceed with their oil supply management policy – to extend the production cuts in any form, or to reverse all or some of the cuts. Related: The Only Most Harsh Indicator for Oil

OPEC does not go into decisions to reverse the cuts made last year in the follow-up to US sanctions against Iran, just to see oil prices crash in the fourth quarter. The cartel is said to consider expanding production cuts throughout 2019, although quotas may vary to prevent another oil price crash that would damage budgets of many OPEC members, including the de facto leader Saudi Arabia.

"The bottom line is that none of us wants to see the stocks swell again, so we need to be cautious. That's one of our most critical priorities," said Saudi Energy Minister Khalid al-Falih on a panel in OPEC / non-OPEC Ministerial meeting this weekend.

"The Saudis seem to expand the production agreement in the second half of this year, to" cautiously "pull down inventory," said Warren Patterson, commander of commodity strategy at ING, Monday. need to prolong the deal in its current form, as the market will see significant tensions as we enter the third quarter.

OPEC and its Russian-led non-OPEC allies will settle down to determine the fate of the deal for over a month from now on, where geopolitical risks and demand forecasts will fight for dominance in putting the mood on the oil market.

By Tsvetana Paraskova for Oilprice.com

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