Published: Wed, October 03, 2018
Business | By Eloise Houston

Oil heading to $100 & OPEC is ‘powerless to prevent it’

Oil heading to $100 & OPEC is ‘powerless to prevent it’

Brent crude, the global oil benchmark, surged on Friday to a fresh 4-year high above $83/bbl as the market braces for the impact of the USA energy sanctions on Iran.

Exchange data show hedge funds' combined net long position in Brent and United States light crude futures and options at its largest since late July, equivalent to about 850 million barrels.

Worldwide benchmark Brent crude traded at around $83.01 on Monday, up around 0.34 percent, while US West Texas Intermediate (WTI) stood at around $73.42, more than 0.2 percent higher. As of the moment, the market's focus is on the looming sanctions of Washington on Iran, which is slated to take a full swing by November 4 this year.

Crude prices have been mainly lifted by looming USA sanctions that target Iran's oil industry, which at its most recent highest level this year provided nearly 3 percent of the world's almost 100 million barrels of daily consumption.

Jubril Kareem‏, an oil and gas expert in a tweet on Monday, said, "Oil at $85/barrel". Meanwhile, the 24-year-old North American Free Trade Agreement will now be superseded by the U.S. -Mexico-Canada Agreement, covering a region that trades more than $1 trillion annually. India's oil import bill, though, rose 25 per cent in FY18 to $88 billion from $70 billion in FY17 due to higher crude prices.

The three on average expect non-OPEC crude supply - they do not even try to predict what OPEC will do - to outstrip global demand next year by 580,000 bpd, similar to this year, leaving OPEC to supply the difference if it chooses to. The market was expecting a production increase decision from OPEC as the current export levels of Iran were about 35 percent below as compared with its oil export in April.

Managing director at an investment services firm Brian Kessens stated that the group of believers that $100 oil could be hit keeps expanding, with spare capacity concerns continuing to grow. Gaps in supply from Iran can be filled by other producers as much spare capacity seems available, yet the September 23 meeting revealed major contradictions between OPEC countries to an extent that brings a potential existential crisis in sight. The world now consumes about 100 million barrels a day of oil despite worries that electric cars and a rising trend toward renewable energy sources might one day reduce oil consumption. "It also eases some of the trade concerns that had persisted in the market". Meanwhile, the number of working oil rigs in the USA dropped for a second week, signalling that American output may also be slowing.

Houston based service company Baker Hughes reported on Friday that the number of active drilling rigs in the United States increased by 1 to 1054, but the oil rigs in the country declined by 3 to 863.

The expectations of still-strong demand for oil come as U.S.

On Friday, WTI and Brent prices settled 1.48 percent and 1.45 percent higher, respectively.

The oil market cycles between periods of over- and under-supply.

In the near future, the oil market would be concerned with the ongoing trade disputes as it might lead to slowdown of economic growth across the world, especially in the case of China.

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