the price of oil has recently been largely determined by geopolitical factors
- The geopolitical risk associated with the situation in Iran and Venezuela has recently become a major factor in determining the price of oil, ahead of global growth, the US dollar and financial market variables.
- Traditional factors that determine oil prices, such as the balance of supply and demand, are likely to lead to lower oil prices.
- Euler Hermes identifies three possible oil price scenarios for the rest of the year, which are revealed in this press release.
What about oil from Iran and Venezuela?
It seems unlikely that Iran will be completely excluded from the international oil market. Indeed, the application of international sanctions against the country should be less harsh than in the past, since it is no longer part of the multilateral framework. However, Iranian supplies will be less plentiful, and this at a time when the political and economic crisis that Venezuela is experiencing is leading to a drop in world oil supplies, by an estimated 0.5 million barrels per day.
Taking into account these two factors, Euler Hermes estimates that global oil supplies could fall by one million barrels a day for the remainder of the year.
Which countries could compensate for this deficit?
OPEC countries can increase their production, especially Saudi Arabia, which has considerable leeway. However, if a country in the organization wanted to increase production, it first needed to get the consent of OPEC and Russia.
At the same time, the US government entered into discussions with leading companies in the industry to measure their ability to increase production. After all, the oil market could count on an increase in US production, albeit limited in 2018.
What scenarios does Euler Hermes suggest?
Euler Hermes offers three oil price scenarios for 2018:
- Euler Hermes' main scenario, most likely according to the world leader in credit insurance, is oil price stabilization at $72/bbl in 2018 (annual average). Then world oil supplies will be reduced by only 0.5 million barrels per day. Even if the disadvantages associated with the Venezuelan situation do not have to be made up, much of the deficit coming from Iran can be made up. Indeed, OPEC has enough to increase production by 2 million barrels per day, while US production may increase marginally.
- According to the second scenario, this time optimistic, the price of oil will settle at $80 per barrel in 2018 (annual average). This scenario predicts a 2% appreciation of the US dollar with a reduction in global oil supplies of about 2 million barrels per day, including 1.5 from Iran and 0.5 from Venezuela.
- The third scenario assumes a barrel price of $67 in 2018 (average annual price). This scenario is based on +3% global GDP growth and a 5% appreciation of the US dollar. At the same time, the shortage of Iranian and Venezuelan oil will be fully compensated, and world production will increase by 0.5 million barrels per day under the leadership of the United States.
For 2019, Euler Hermes forecasts a price per barrel of $69 (annual average) with 3.1% global economic growth, a 25% appreciation in the US dollar and a 2 million barrel increase in global oil production . barrels per day. This scenario includes a sharp increase in production in some OPEC countries and a reduction in US shale gas production in the second half of 2019.