Iran could flood the market with millions of barrels of oil if Joe Biden becomes president, one of Wall Street's top analysts says
The oil market is not considering the threat of a Joe Biden victory in the US election, a renowned oil analyst warned this week. RBC Capital Markets' Helima Croft told Business Insider that a Biden victory could lead to the renegotiation of the Iran Nuclear Deal, which could in turn see Iran up international oil production. "You could see a million plus Iranian barrels hit the market," Croft told Business Insider. Croft told Business Insider: "Iranian exports hitting the market is going to put a temporary lid on how high prices can go." Visit Business Insider's homepage for more stories.
A Joe Biden victory in the White House this year could be negative for oil prices as he is likely to take a softer stance on Iran and lift sanctions paving the way for millions of barrels of Iranian crude to return to the market, one of Wall Street's top commodity analysts said. Speaking to Business Insider, Helima Croft, head of commodity strategy at RBC Capital Markets, said: "One of the things you want to think about for oil in 2021 is who is in the White House?" "If you have Joe Biden as president he could basically take the US back into the [Iranian] Nuclear deal and you could see a million plus Iranian barrels hit the market. These are the kind of things I think will be very important into the trajectory of oil into 2021," she added. Joe Biden is likely to bring the US back to the Iranian-nuclear deal The Iranian Nuclear Deal was agreed under the tenure of former US President Barack Obama in 2015 between Iran, US, UK, France, China, Russia and Germany. The deal lifted Iranian sanctions in return for agreement that the country would limit its suspected nuclear activities. US President Donald Trump, a vocal critic of the deal, exited the agreement in 2018, though remaining allies remained committed to the deal. Tensions flared up again between Tehran and Washington this year after the US ordered the killing of Iranian military commander Qassem Soleimani, prompting the Gulf nation to also withdraw from the nuclear agreement. Croft says if Biden wins, he is unlikely to be as aggressive as Trump has been on Iran, and sees a high probability of the Iranian Nuclear Deal being renegotiated, opening up the Strait of Hormuz — a key waterway controlled by Iran — back to international oil markets. Biden is currently leading Trump comfortably in most polls.
Croft pointed it out there may be a time lag before the Iran oil hits the market though. The Iranians would have to make a serious show stopping their breaches as a nuclear deal, she said. Read More: Paul Andreola has a long track record of finding tiny stocks that deliver 10-times returns. He lays out the 4 criteria he looks for when seeking the next explosive pick. "But if we are talking about a recovery into the $50-60 a barrel next year, a million or even two million barrels of Iranian exports hitting the market is going to put a temporary lid on how high prices can go," Croft added. Both Brent crude, the international benchmark, and US WTI oil are currently trading in the low $40s per barrel. Iran owns 13% of the world's global oil reserves and has a production capacity of more than 3 million barrels per day, roughly equivalent to 4% of total global production, according to US' Energy Information Administration(EIA). Both US oil and Brent, have been extremely volatile in 2020, partly due to lower demand during the pandemic and a price war between Saudi Arabia and Russia that began in March this year. Read More: Morgan Stanley unpacks 4 reasons why the ongoing tech boom won't end like the 2000 dot-com crash — and shares how you can profit from future gains US oil prices even turned negative in April due to tanking demand and as the world ran out of place to store oil. Brent experienced a dramatic decline, falling to a two-decade low. Prices staged a remarkable recovery in May and June as some economies began to ease lockdowns and an OPEC agreement in April to reduce supply by 9.7 million barrels a day in May and June kicked in. Cuts were extended until July, although OPEC decided this week to ease the cuts in August and September. In the same interview with Business Insider, Croft warned that any easing by the OPEC may result in lower oil prices as it increases the likelihood that smaller players in the market could cheat the cuts and produce more oil than agreed.Join the conversation about this story » NOW WATCH: What makes 'Parasite' so shocking is the twist that happens in a 10-minute sequence
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OPEC+ urges 'full conformity' with production cuts, and Saudi Arabia's energy minister warns market gamblers will be hurt 'like hell'
Summary List Placement The Organization of Petroleum Exporting Countries and its allies urged "full conformity" with...Summary List Placement The Organization of Petroleum Exporting Countries and its allies urged "full conformity" with oil production cuts at its online meeting held on Thursday. In a separate news conference, Saudi Arabia's energy minister warned that those traders who wish to short the oil market would be hurt "like hell." Saudi's Prince Abdulaziz said OPEC+ could hold an extraordinary meeting in October if oil demand worsens. "With the formerly noncompliant countries likely reducing their production and current prices being too low to support growth in the US, oil supply is likely to stay under control," a commodity analyst at UBS said. Visit Business Insider's homepage for more stories. OPEC+ emphasized on sustaining "full conformity" with oil production cuts at its Thursday meeting, which was held to review compliance targets. On the same day, Saudi Arabia's energy minister warned traders against heavily betting in the oil market, promising that those who gamble on prices will be hurt "like hell." "Anyone who thinks they will get a word from me on what we will do next, is absolutely living in a La La Land... I'm going to make sure whoever gambles on this market will be ouching like hell," OPEC's most influential minister, Prince Abdulaziz, said at a news conference, when he was asked about the organization's next steps. He said that the OPEC+ could hold an uncustomary meeting in October if oil demand worsens and COVID-19 cases increase substantially. The world's largest crude exporters discussed continued flexibility on production cuts and made no changes to the current output reduction of 7.7 million barrels per day until December, or around 8% of global demand. Analysts had not expected any additional output cuts at Thursday's meeting. Read More: Goldman Sachs says oil prices are set to move 'meaningfully higher' into next year. Here are 7 reasons why the firm is bullish, and 5 stocks it recommends buying in advance The Joint Ministerial Monitoring Committee "observed that the recovery has not been even across the world and an increase in COVID-19 cases has appeared in some countries," an OPEC statement read. "In the current environment, the JMMC emphasized the importance of being pro-active and pre-emptive and recommended that participating countries should be willing to take further necessary measures when needed." Oil prices have risen about 11% in the last week following a drawdown in US crude and gasoline inventories, and as Hurricane Sally forced one-fifth of US offshore production to shut. International benchmark Brent crude rose 0.5%, to $43, and US benchmark West Texas Intermediate rose 0.6%, to $41, on Friday. "With the formerly noncompliant countries likely reducing their production and current prices being too low to support growth in the US, oil supply is likely to stay under control," said Giovanni Staunovo, a commodity analyst at UBS. "Should oil demand continue to recover gradually as we expect, the oil market is likely to stay undersupplied," he said. UBS predicts the price of Brent to rise to $45 per barrel in the fourth-quarter this year, and hit $55 per barrel by mid-2021. Read More: 3 top investing executives lay out the biggest risks to markets heading into a volatile election season — and share their best recommendations for navigating what happens nextSEE ALSO: The Bank of England warns of an 'unusually uncertain' outlook, and policymakers are keeping negative interest rates on the table Join the conversation about this story » NOW WATCH: Epidemiologists debunk 13 coronavirus myths
Why the price of oil is continuing to free-fall after a historic supply cut — and when experts think it may finally reach rock bottom
A coalition of oil-producing countries known as OPEC Plus reached a historic deal to cut production...A coalition of oil-producing countries known as OPEC Plus reached a historic deal to cut production by nearly 10 million barrels per day earlier this month. Other countries have also agreed to curb supply. But as the market has shown, even steep cuts to supply won't prevent the price from free-falling. On Monday, US crude was hovering around $11 a barrel — the lowest level since December 1998. In recent reports, several Wall Sreet analysts explain that supply cuts won't prevent storage tanks from filling up in as few as two months. Plus, historically, countries don't fully comply with the production cuts to which they agree. Visit Business Insider's homepage for more stories. A coalition of oil-producing nations known as OPEC Plus made history on April 12, when it reached a deal to curb oil supply by 9.7 million barrels per day, dwarfing all previous cuts. It was a remarkable response to a collapse in oil demand linked to the coronavirus pandemic, which has stunted transportation. Yet as markets on Monday have shown, the OPEC Plus deal — shouldered in large part by top producers Saudi Arabia and Russia — won't prevent oil prices from freefalling. On Monday, the price of near-term WTI futures, a benchmark for US crude oil, plunged to about $11 a barrel — a more than 21-year low. The international benchmark, Brent, slid to $26.23 a barrel at intrasession lows. That suggests that even steep production cuts can't reverse the historic shock to demand, experts say. "This is clearly the largest production cut ever — and will be in real terms," Greg Priddy, director of global energy and the Middle East at Stratfor, told Business Insider. "But it's also the largest demand destruction that we've seen in modern times." But there are a handful of other reasons why oil prices continue to freefall, according to research from several industry experts. Click here to subscribe to Power Line, Business Insider's weekly energy newsletter. Production cuts on paper don't always translate The OPEC Plus alliance agreed to cut production by a record 9.7 million barrels a day (bpd), or about 10% of global supply, in May and June, after which the cuts gradually step down. That amounts to most OPEC Plus countries slashing production by 23% in the near-term. The US, Canada, and Brazil, which are not part of OPEC Plus, may also cut production by about 3.7 million bpd, Goldman Sachs analysts led by Damien Courvalin said in a note last week. These cuts are unlikely to be through a voluntary agreement, but rather via "market forces" — namely, low oil prices — that make it economical to reduce supply, Courvalin said. The unknown is whether all of these countries will actually make the cuts to which they've agreed. Courvalin said he assumed full compliance from core OPEC members and 50% from all other participants in May, when the cuts are slated to begin. That means the OPEC Plus deal would lead to an actual cut of only 4.3 million bpd, relative to production in the first three months of the year, he said. Bank of America strategists were slightly more optimistic. In a note last week, they said the actual production cut would be more like 7.2 million bpd over the first few months, relative to February. Whatever the number is, analysts are anticipating that it will fall short of the agreed-upon 9.7 million barrels. According to Priddy, that's because some of the countries will have a hard time making the cuts. Iraq, for example, agreed to cut production by 1 million bpd, yet the country owes cost-recovery payments to foreign companies that are helping them raise production, he said. "That presents them with a big dilemma," he said. "Their finances are getting hit, but they also have contracts that obligate them to pay those companies." Even with production cuts, storage will fill up fast Whether or not they're realized, production cuts on the scale of 10 million bpd are simply dwarfed by the collapse in demand. Estimates vary, but banks like Credit Suisse and Goldman Sachs expect oil demand for April to take a hit on the order of more than 20 million barrels per day, relative to last year. That stunning loss of demand means a lot of oil has nowhere to go. And the OPEC Plus cut won't stop the threat of storage tanks filling up sometime before June, analysts at Credit Suisse wrote in a report last week. Analysts at Morgan Stanley had a similar outlook. "While this helps moderate storage builds," they wrote of the OPEC Plus deal, "the market should remain oversupplied given the sheer magnitude of lost demand from the COVID-19 pandemic." They added that the US is on pace to fill storage in about two months. Meanwhile, Courvalin's team said that the agreement is "too little and too late to avoid breaching storage capacity" and that no voluntary cuts "could be large enough to offset" the demand collapse in April and May. What it means for the oil and gas industry The price of oil will fall — at least, that's one of the takeaways from a handful of reports last week. Brent crude futures, which are currently priced just under $27 a barrel, could drop below $20 in the near term, according to Morgan Stanley. They started the year closer to $70. "The global oil market will have the largest spare capacity in at least a decade, leading to a flatter Brent crude oil curve," Bank of America analysts wrote. "As the dust settles, it could also potentially leave oil prices lower for longer." How much longer? Goldman Sachs expects "a gradual recovery" in Brent prices, reaching $40 per barrel by no earlier than October, at which point it said inventories would start to wind down. A consequence of low oil prices is that companies shut-in wells — in other words, they turn off the tap. Really cheap oil can mean that some wells aren't economical anymore, even if shutting them down can cause permanent damage to the supply. Morgan Stanley analysts estimate that about 2 million barrels of oil will be shut in as a result of the pandemic. "Producers have already begun to announce shut-ins, and we expect more will follow," the bank's analysts wrote. Indeed, the oil giant Continental Resources has already announced that it's curbing production by 30% for April and May, they said. Meanwhile, ConocoPhillips said it would curb production by 225,000 gross barrels of oil per day. It's these market-driven cuts to production in the US that will likely help rebalance the market — but not before companies slash their capital spending and lay off staff to adjust to those changes. Read more: How 18 oil giants from Exxon to Halliburton are cutting staff and slashing spending in response to the historic oil price meltdown "There are still going to be a lot of layoffs in the shale patch," Priddy said. "This is still something that is going to hammer the industry." This story was originally published on April 13. It was updated with recent changes to the oil market. Join the conversation about this story » NOW WATCH: We tested a machine that brews beer at the push of a button
Breakdown of talks with Russia prompted Saudi Arabia to turn on taps and push down priceSaudi...Breakdown of talks with Russia prompted Saudi Arabia to turn on taps and push down priceSaudi Arabia, the world’s biggest oil exporter, has spelled out details of the dramatic increase in its production that prompted Monday’s huge falls in global stock markets and is regarded as a targeted attack on the US shale oil industry.The state-owned oil firm Saudi Aramco, said in April, when a three-year Opec deal with Russia expires, it would increase output from 9.7m barrels per day (bpd) to 12.3m, flooding the market and bringing oil prices lower. Continue reading...