Oil prices dipped slightly on Thursday as investors took profit after Wednesday’s rally which began after US President Donald Trump announced he was abandoning the Iran sanctions relief agreement.  Statoil photo by Harald Pettersen.

Oil prices could hit $100/barrel next year or sooner: Bank of America

Oil prices slipped slightly on Thursday mostly due to investors taking profit following a frantic rally on Wednesday which was spurred by the Trump administration’s decision to opt out of the Iran sanctions relief deal.

By 2:17 p.m., EDT, benchmark Brent crude futures were down 17 cents to $77.04.  Earlier in the session, Brent reached a high of $78/barrel, the highest since November 2014.  US West Texas Intermediate fell 16 cents to $70.98/barrel.  The Canadian Crude Index fell $1.02 to $50.91.

Losses were clipped on concerns that Venezuela’s crude production could decrease even more and on data from the US Energy Information Administration that showed a decline in US crude stocks last week.

According to the EIA, US crude inventories fell by 2.2 million barrels last week, much higher than the 791,000 barrel drop forecast by analysts.

On Tuesday, US President Donald Trump said his government will abandon the 2015 international agreement that curbed Iran’s nuclear activities in exchange for removal of European and US sanctions.  He also announced he plans to impose new sanctions against Iran

“As we digest the news of the withdrawal from the Nuclear Accord, I think it’s beginning to set in that there’s a six-month lag before things begin to effect supply,” Gene McGillian, Vice President of research at Tradition Energy told Reuters. He added “Overall the market still looks poised for higher levels.”

In recent weeks, fears of disruptions in crude supplies from Iran fuelled increases in oil prices, and along with shrinking global supplies coupled with rising demand, boosted oil prices for the fourth consecutive quarter.  This is the longest stretch of gains in over 10 years.

On Thursday, China reassured Iran that it would continue to import its crude, in spite of the Trump decision to reinstate sanctions against Tehran.  Iran ships about 450,000 barrels per day (b/d) to Europe and about 1.8 million b/d to Asia.

China will “carry on the normal and transparent pragmatic cooperation with Iran on the basis of not violating our international obligation”, said spokesman for China’s Foreign Ministry, Geng Shuang.

European allies to the US say they will remain committed to the Iran sanction relief agreement.  German Chancellor Angela Merkel voiced her support for the pact on Thursday.

However, energy consultancy FGE said “Europe and China will not fight against the US sanctions. They will grumble and accept it. There is no one who will realistically choose Iran over the US.”

“We believe the previous 1 million-b/d limit for exports (imposed during previous sanctions) will be reimposed. As before, it may take several rounds of reductions to reach target levels,” Reuters reports FGE’s founder and chairman Fereidun Fesharaki wrote in a note.

As the oil market continues to tighten, Saudi Arabia says it is prepared to offset any shortage caused by the Iran sanctions.

But Reuters’ sources say OPEC is not in a rush to decide if it will boost its production to make up for the expected decline in Iran’s exports.

“What the full impact on Iranian flows will be is still difficult to estimate,” Petromatrix strategist Olivier Jakob told Reuters.

“One thing that has changed and which I think is clearly a new development is that it seems to me that the White House administration has really pushed Saudi Arabia to do something about price and to put supply back into the market to make sure prices do not run up … before (when sanctions were last in place) Saudi Arabia was driving its own oil policy.”

Bank of America said Brent crude could hit $100/barrel in 2019, or even sooner, due to the crisis in Venezuela and US sanctions against Iran.  Bank of America lifted its average Brent forecast to $70/barrel for 2018 and $75/barrel in 2019.

However, one factor expected to limit oil prices gains is rising US production that the EIA says could reach 12 million b/d in late 2019.

Should the EIA forecast be correct, the United States will be the largest crude producer, ahead of Russia and Saudi Arabia.