The big news this week is Trump’s re-imposition of sanctions on Iran, which will cut Iran’s oil production to the point where, combined with cratering oil production from Venezuela, it could cause another oil price spike. We follow with our usual mix – more on Iran, Venezuela and OPEC; oil in Norway; gas pipeline constraints in Europe; Japan moves to coal; British Columbia misses its renewables target; stalemate at the Bonn Climate Conference; California to mandate rooftop solar on new houses; Tesla’s 1GW battery; hydrogen storage in UK; the Swansea Bay tidal standoff; more cracks at Hunterston and how the ravages of climate change threaten historical records.
President Donald Trump’s decision to withdraw from the nuclear agreement with Iran marks the end of the current output agreement between OPEC and its allies.
The prospective removal of several hundred thousand barrels per day of Iranian exports from the market will require a major adjustment. Saudi Arabia and its close allies Abu Dhabi and Kuwait hold almost all the spare capacity that could respond quickly to a reduction in Iranian exports. U.S. shale producers could also increase their output but it would take time and their light crude is not a good substitute for heavier Iranian oil. Russian firms may also hold spare capacity and could certainly increase output over a 12-month horizon. Their crude is a close equivalent to Iranian grades.
Collapsing oil production in Venezuela and potential export disruptions in Iran could push the price of Brent crude as high as $100 per barrel in 2019. Bank of America analysts said their target price for Brent, the global benchmark, was $90 for the second quarter of next year. But they warned there was a risk that deteriorating conditions in Iran would push prices to $100, a level not seen since 2014.
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