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Oil at $100 is a possibility next year, Bank of America says

Oil at $100 is a possibility next year, Bank of America says

Iranian Oil Minister Bijan Namdar Zanganeh said Donald Trump's decision on abandoning the nuclear deal is not going to have a great impact on Iran's oil, gas and gas condensate exports and revenue, IRIB reported on Friday. If history is any guide, there is little chance of this happening, so we are now on a course of escalating confrontation.

He also announced the USA will re-impose sanctions against Iran, which will be rolled out in keeping with 90 day and 180 day wind-down periods. However, there is a great deal of disagreement and uncertainty over how quickly and how severely the impact of US confrontation will be.

Oil prices steadied near 3-1/2 year highs on Friday as the prospect of new US sanctions on Iran tightened the outlook for Middle East supply at a time when global crude production is only just keeping pace with rising demand. The EU, China and Russian Federation have said they are sticking with the deal.

"It is not yet clear which concrete sanctions the US will impose". The EU has vowed to protect its companies, and could even pursue trade retaliation if the U.S. Treasury moves to penalize European companies. "While prices are now rising on Trump's decision to reimpose sanctions on Iran, we may see some limitations to the rally as any lost volumes can be supplied by other producing nations".

Just how much of Iran's growth in oil production is at risk - and when it could decline - is uncertain.

Iran produced about 3.8 million barrels of oil per day in April, according to the latest S&P Global Platts OPEC survey. Disruption in a commodity-importing region such as Asia threatens to drag down other emerging market regions with it. A 20 percent reduction was an unofficial rule of thumb during the Obama era.

The global oil market is finely balanced, with top exporter Saudi Arabia and No.1 producer Russian Federation having led efforts to curb oil supply to prop up prices.

"If a new Iran deal is not reached in the next six months or OPEC/Russia extend production cuts into 2019, global oil markets would likely tighten further", the report said. This is unlikely to happen this time around as the United States has revoked the deal unilaterally and against the will of most other countries.

Niels Christensen: Saudi Arabia said earlier this year that they would be pleased to see oil prices above $80 towards $100, and they have also been indicating that they are not going to change the re-agreement amongst the OPEC countries about production cuts, that is running until the end of the year and everybody expects that deal with Russian Federation and also other non-OPEC countries to continue into 2019, so that will also be a factor supporting the oil prices.

Barclays does not see a significant impact on the oil market either.

OPEC kingpin Saudi Arabia indicated it was ready to act.

A lot depends on what Iran does next. "Importantly, Iranian compliance with its JCPOA obligations may potentially help it find alternative routes to export crude oil to worldwide markets", Barclays says.

The official further noted that Iran's oil industry has gone through massive changes through years and it can not be compared with 20 years ago.

Other major producers could fill the hole left by Iran. "The major concern in Tehran is not around volumes of crude that it could sell - not in the short to medium term at any rate - but over transfer of payments for those volumes", according to Argus Media.

Investment bank Goldman Sachs said in a note that Trump's announcement brought upside risks to its forecast that Brent crude will hit $82.50 a barrel by the summer.

Wall Street stocks rose Wednesday, with energy shares boosted by higher oil prices and banking shares advancing on expectations of increased interest rates.

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