As things stand, the possibility of oil prices surging past $80 a barrel does not look any more like a distant possibility though it might not even need so much effort to tip down downhill.
Brent crude, the benchmark for half of the world’s oil, traded at an average price of $54.75 a barrel in 2017 and this year it looks to climb above $70 in the first quarter of 2018. Brent was sold $68.65 a barrel last week.
These are the reasons why an $80 oil looks like a possibility:
Venezuela’s economy could tank further
The graph of Venezuela’s production is a slippery slope that spiralled out of control when the country defaulted on its debt last year and now has larger and more significant payments maturing this year. In the ensuing cash crunch that follows, the country’s oil sector has taken a beating.
Venezuela produced over 3.5 million barrels per day (mb/d) in the late 1990s, but output has shrunk to 1.7 mb/d in December 2017 according to S&P Global Platts. The less oil it produces, the more supply is constrained which effectively helps prices.
“The Venezuelan economy could collapse at any moment,” said Torbjorn Kjus, oil market analyst with Norway’s DNB Bank, according to S&P Global Platts. “We could envisage scenarios spanning from outright civil war to a state coup, to a general strike or even just one more year of strangulating slow death for the economy. Neither of these outcomes bodes well for Venezuelan oil production.”
Trump could stoke Middle East crises
The Middle East region ordinary does not need much persuasion to boil add Donald Trump, the bellicose US president and things could get frantic pretty fast.
This is why CitiGroup says wildcards including war, Middle East tensions, Donald Trump and Kim Jong Un are other factors that would help crude toward $80 a barrel.
“Many of these uncertainties have significant consequences for commodities,” Citigroup analysts including Ed Morse wrote in the report titled Wildcards for 2018: Trump looms large along with systemic risks. “It is not a surprise that our list of potential wildcard events in the year ahead retains a focus on the United States.”
Re-imposing of US sanctions on Iran, the third-biggest OPEC producer, is likely to dislocate at least 500,000 barrels of the Middle Eastern nation’s oil exports, resulting in a $5 price increase to oil, says Citi.
Trumps and North Korea could force new stockpiles
Trump has even provoked North Korea enough to make restart dialogue with its southern neighbour, just to piss off the US president. The US President has shifted the focus to geopolitical risks, with his pursuit of sanctions North Korea potentially having significant consequence says the bank.
The rhetoric from and toward North Korea has also escalated in the past few months, carrying the “non-negligible risk” of turning into a military conflict, according to Citigroup. This could lead to ramp in stockpiling of strategic goods such as crude on account of the risk of war.
Disruptions from OPEC members
Potential disruptions in OPEC countries including Iraq, Libya and Nigeria are additional factors predicted to shorn over 3 million bpd from global production by Citi.
Africa’s top oil producer has a tough battle on its hands to rein militants to rally production past the 1.9 million barrels per day it hit November forcing OPEC to bring the country into is supply cap deal, where the cartel and non-members including Russia agreed to cut global production by 1.8m bpd.
But an $80 per barrel oil represents a 78 percent increase from 2018 budget benchmark of $45 which could put Nigeria’s revenue close to the budgeted earnings. It only needs to keep the militants away from the pipelines.
Libya nearly tripled its oil revenue in 2017 to $14 billion as the country managed recovered its oil production, reaching 1 million bpd for the first time since 2013, almost realising three times its revenue of US$4.8 billion in 2016 according to data from its central bank.
However the country faces a threat from the Islamic State forces who are believed to planning an attack on the country’s Oil Crescent, where its export terminals and many fields are located, a senior official from the U.S. Africa Command told Asharq Al-Awsat, a London-based Arabic international newspaper.
ISAAC ANYAOGU
