In its October 2018 Short-Term Energy Outlook, the US Energy Information Administration (EIA) said Brent crude prices would average $81 per barrel in the fourth quarter of 2018, and would settle at an average of $75 per barrel in 2019.
However, it noted that US sanctions on Iran, due to be reimposed in early November, make the forecast uncertain. It estimates that Iran’s crude oil production will drop by approximately 1mn barrels per day (bpd) in 2019 from its April 2018 output of 3.8mn bpd. The report noted that the forecast supply cut resembles the drop in Iran’s production in 2012, when sanctions were imposed on the country’s central bank.
In 2017, Iran’s net oil export revenues were approximately $55bn. It would be difficult to estimate how strongly this would be affected by sanctions. Notably, the report says supply cuts are not the only factor to watch out for; the way OPEC members and other oil producers react to the cuts will ultimately decide their impact on oil prices.
“The total volumes of crude oil and condensate coming off the market will become more apparent in the months following the full implementation of sanctions in November,” the report said “However, the response of other producers to compensate for lost supplies from Iran is also uncertain. Significant differences between any potential production response and the actual volumes taken off the market would likely result in increased price volatility.”
EIA expects OPEC spare production capacity will average 1.3mn bpd in 2019, down from 2.1mn bpd in 2017. That, in conjunction with declining output from Iran and Venezuela, might cause a supply crunch, depending on how much production actually suffers following sanctions.
