Iran sanctions disrupt certainty of oil, gas price forecasts

The effects of the Trump Administration’s re-imposed sanctions on Iran and withdrawal from the Joint Comprehensive Plan of Action (JCPOA) are trickling uncertainty down into energy outlooks.

The U.S. Energy Information Administration (EIA) released a short-term energy outlook forecast on crude oil spot prices, which averaged $79 per barrel in September, that expects the prices to increase to $81 per barrel in the final quarter of 2018 before falling to $75 per barrel next year. The EIA said, however, that those predictions are subject to excessive change as the market responds to U.S. actions on Iran, and to the potential replies from members of the Organization of the Petroleum Exporting Countries (OPEC).

For the moment, upward price movement and the possibility that crude oil prices may remain higher as the market assesses the sanctions’ effects are the primary things holding the price at $81/barrel. Effects have been slowed by two wind-down periods in the wake of the sanctions, which will effectively end on Nov. 4. As sanctions increase, the EIA expects Iran’s average crude oil production will fall in 2019 by around 1 million barrels per day. As of April this year, they had been producing 3.8 million barrels per day.

Crude oil and condensate exports are a major source of revenue for the Middle Eastern nation, whose net revenues clocked in at around $55 billion in 2017. For the rest of the world, the EIA figures OPEC spare production capacity will fall to 1.3 million barrels per day in 2019, significantly below the 10 year average of 2.3 million barrels per day. That means the market will have low space capacity, increasing opportunity for price volatility. Higher prices could, the report noted, increase global crude oil production.