The oil market is set to tighten further before the end of this year – a sign that OPEC’s early response to boost supply may not be enough to offset a significant (possibly 1 million bpd barrel) loss of crude oil supply from Iran, Helima Croft, RBC Capital Markets global head of commodity strategy, told CNBC on Friday.
On Monday, August 6, the first set of U.S. sanctions on Iran will snap back, so we will be probably looking at tougher actions over August and September, Croft said.
The question regarding Iranian oil supply now is, can the Trump Administration get everybody else except China, which has already said it won’t recognize U.S. sanctions on Iran, out of the market, according to the strategist.
The U.S. can get Europe out of the market, and India—Iran’s second-largest oil customer after China—will likely reduce Iranian purchases even if it doesn’t get entirely out the market, Croft told CNBC.
The combination of crumbling Venezuelan oil production and the aggressive U.S. efforts to curtail Iranian exports is going to tighten the market. OPEC has responded with boosting supply, but we are yet to see how much Iranian supply would be choked off, Croft said, adding that “it’s going to be very significant.”
According to a Reuters poll earlier this week, 44 economists and analysts expect the U.S. sanctions to take between 500,000 bpd and 1 million bpd of Iranian crude oil off the market. The return of sanctions on Iran was one of the reasons why the experts raised again—for a tenth consecutive month—their oil price forecasts for WTI Crude and Brent Crude prices, which are now expected to average $67.32 a barrel and $72.87 a barrel this year, respectively.