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Oil at $100: a pipe dream?

As US sanctions on Iran take effect, we ask whether oil is set for a renewed rally back towards $100 or if traders are betting on the market to fall back
Oil at $100: a pipe dream?

If global stocks had a bad month in October, oil endured an equally torrid start to the fourth quarter. Crude prices roared higher in 2017 and for the most of 2018. Coming off a low around $45 a barrel for Brent crude in June 2017, prices rose clear of $80 by the start of October this year. Since then the market has eased, with the price of Brent, the international benchmark, retreating by around 15 per cent over the month to the $72-a-barrel region.

Stoking the gains for oil were several short and long-term supply and demand factors. The Organization of the Petroleum Exporting Countries (Opec) plus Russia decided at the tail end of 2016 to cut output, a programme of restraint they have admirably stuck to. This undoubtedly has been instrumental in the rise in oil from the multi-year lows struck in 2016. Through 2018 the cartel has stuck to its guns; and, if anything, fears that members will not comply with production cuts have proved the opposite – overcompliance was a problem. The unplanned loss of production from Libya and Venezuela amplified the efforts by the cartel to control output.

On top of this were fears about Iran. Specifically, fresh US sanctions on the country and what impact this would have on the oil market as supply is removed. This was the chief driver of the oil rally in the second half of the year, with up to 2m barrels a day in output potentially being removed from the global market.

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