Crude price seen moderating despite end of US waiver on Iran oil imports

World Bank feels commodity will shed 3% on weaker outlook for global growth in 2019 and a larger-than-expected increase in US shale output

Despite a spurt in the price of crude oil in recent days, following the US government ending all exemptions regarding its import from Iran, the World Bank feels this is unlikely to change much over the coming months.

In its just-issued Commodity Outlook April 2019 report, the Bank says: “Crude oil prices, which averaged $68/barrel in 2018, are expected to average $66 over 2019 and $65 in 2020, with balanced risks primarily related to policy outcomes.”

This is despite Brent crude having risen above $74 a barrel, in the wake of the US government ending its previous waiver on Iran import for eight countries, including India.

“(Our) downward revisions reflect a weaker outlook for global growth in 2019 and much larger than expected increases in US shale production,” explains the Bank. However, the report also notes that this outlook could change, depending on how some factors change. For instance, the present oil market is broadly balanced but “the outcome of Opec’s (the petro exporting countries’ cartel) June meeting regarding production cuts, the (uncertain) impact of the removal of waivers to the US sanctions, and the effect of the International Maritime Organization’s sulphur emissions regulation that takes effect on January 1, 2020” could spoil the party for consuming countries.

Other risks include geopolitical events such as conflict in Libya, weaker than expected growth in major oil consumers, especially China and the US, and environmental policies.

CARE Ratings, in its analysis of what the Bank has said, says it is unclear how quickly countries will comply with the ending of US sanction waivers; also, some (China, for instance) might choose to ignore these. And, “It is possible that major oil producing countries, notably Saudi Arabia and the United Arab Emirates, could increase production to compensate for any shortfall resulting from the termination of waivers.”

Investment bank Nomura, in its Asian Insight report issued on Wednesday, has take a similar line.

“Our base case is that the price of Brent crude will soon retrace below $70/bbl as the US and key Opec members increase supply and because of still subdued global growth,” it feels. However, Nomura also admits the price of oil is notoriously difficult to forecast.

JP Morgan Commodity Research’s Abhishek Deshpande estimated in a recent analysis that 0.5-0.7 million barrels a day from Iran would still be exported via the black market or through its porous borders. The U.S. is also likely to lean on Saudi Arabia to help bring back those extra barrels into the market.

JP Morgan also mentions a possibility of the US announcing sanctions on Russia. “The next round of chemical weapons related sanctions could be forthcoming in the next week, with the potential to be far-reaching,” it says.