These predictions are coming at a time Nigeria’s oil production, including condensates, is reported to have increased to 2.07 million bpd, as at April, from 2.02 million bpd in March.
The BofA analysts premised their projection on strong global oil demand growth, quickly falling inventories, and geopolitical issues from Iran to Venezuela. As reported by Business Insider, BofA’s commodity strategists led by Francisco Blanch foresaw that Brent Crude was expected to average $70 a barrel this year and $75 in 2019. Their position was documented in a note.
At 12:27 p.m. Eastern Daylight Time (EDT) on Thursday, oil prices were flat on the day, with Brent Crude at $77.17 and WTI Crude at $71.14.
“We also introduce a 2Q $90/bbl Brent price target for 2019 and see a risk of $100/bbl oil next year, although we are concerned that these market dynamics could unfold over a shorter timeframe,” Blanch wrote in the note.
This year, demand growth is expected at 1.5 million bpd, BofA said, as it revised up its 2019 demand growth by 100,000 bpd to 1.4 million bpd.
Venezuela’s plunging production and the return of U.S. sanctions on Iran could keep exports lower amid tighter market. BofA doesn’t expect Iran’s crude oil exports to change much in the coming months.
OPEC could start winding down the production cut pact next year, but increased production may not be sufficient to offset a fast inventory drop, according to Blanch.
In the United States, producers could scale back production because of a strained supply chain, BofA reckoned.
“In short, the micro drivers of the oil market remain positive, as long as global demand does not suffer from the on-going threats of trade wars and policy uncertainty,” Blanch said.
“With stocks falling quickly during the course of the next 18 months, we would expect continued upside pressure on crude oil prices and see Brent averaging $75/bbl in 2019 compared to $70/bbl this year,” BofA analysts noted, adding that a stronger dollar poses a risk to the high oil price forecast.
Goldman Sachs had Wednesday posited that increased geopolitical tensions in the Middle East, plunging Venezuelan production, and now the U.S. withdrawal from the Iran nuclear deal could push Brent Crude prices to $82.50 a barrel by the summer.
Just last Tuesday, U.S. President Donald Trump said the United States would withdraw from “an unacceptable Iran deal”, re-imposing sanctions on Tehran that “target critical sectors of Iran’s economy, such as its energy, petrochemical, and financial sectors.”
The expectation is that the U.S. will target Iran’s crude oil sales, and sanctions that were lifted under the deal will be re-imposed following a 180-day wind-down period, the U.S. Treasury said.
Reuters reported Goldman Sachs’ note which stated that the return of the sanctions could initially reduce by 500,000 bpd Iran’s current crude oil production of 3.8 million bpd. According to analysts at Goldman Sachs, a loss of 500,000 bpd of Iranian crude oil supply would push up oil prices by around $6.20 per barrel.
“Such elevated oil geopolitical risks exacerbate the upside risks to Brent forecasts and reinforce our view that oil price volatility will continue to increase,” the investment bank’s analysts wrote.
At 11:20 a.m. EDT last Wednesday, both WTI and Brent prices were surging nearly 3 per cent, with Brent touching $77 a barrel, following President Trump’s withdrawal from the Iran deal and EIA’s weekly inventory report showing draws across the board.
Commenting on the impact of the U.S. withdrawal from the Iran deal, director of energy consultancy, Trifecta, Sukrit Vijayakar, told Reuters Wednesday, “Iran’s exports of oil to Asia and Europe will almost certainly decline later this year and into 2019 as some nations seek alternatives in order to avoid trouble with Washington and as sanctions start to bite.”
Several Asian refiners told Reuters that they were already on the lookout for alternatives to Iranian crude oil deliveries.
Meanwhile, Platts, which reported Nigeria’s new oil production figures, cited estimates from the Ministry of Petroleum Resources. A spokesman for the oil ministry told Platts that Nigeria was on track to achieve its oil and condensate production target of 2.3 million bpd, set as an assumption in its 2018 budget.
The cessation of militancy in the Niger Delta in the second half of last year has caused Nigeria to gradually ramp up production, but its oil and condensate output dipped in March due to what officials attributed to illegal tapping of pipelines in the oil-producing region.
Nigeria was initially exempt from the OPEC production cuts together with Libya because of the violence in the two countries that had substantially reduced their oil production. At the meeting where OPEC extended the pact until the end of 2018, Libya and Nigeria agreed to stick to an unofficial collective cap of 2.8 million bpd of crude oil production, reflecting the presumed sustained production capacities of 1 million bpd for Libya and 1.80 million bpd for the country.
According to OPEC’s secondary sources in the latest Monthly Oil Market Report, Nigeria’s crude oil production in March was 1.810 million bpd, up by 18,200 bpd from February.