Oil prices were higher again this morning, buoyed by the looming imposition of sanctions on Iran.
Among market observers, the debate is no longer about whether prices will rise, but how high they are likely to go.
OPEC sees higher world demand
Some see a return to $100 a barrel, but others are urging caution. In the second camp is the investment bank Goldman Sachs, which said a second factor equal to the loss of Iranian supplies from the world market would be needed.
OPEC itself – the 15-nation Organisation of Petroleum Exporting Countries – has just published its September oil report. It forecast increased world oil demand across 2018, with “healthy growth” in the Americas.
Along with renewed US sanctions against Iran, due to take effect in November, the oil price is also being supported by concerted action by OPEC members along with oil producers from the so-called NOPEC countries, an informal grouping whose members are not members of OPEC but are generally sympathetic to its aims of stabilising the oil market.
Deal is a “permanent feature” of the energy scene
Among the NOPEC countries are Oman, Russia and Mexico.
As oil prices slumped below $30 a barrel at the end of 2016, OPEC and NOPEC unveiled a “declaration of co-operation”, which confirmed existing OPEC production curbs but brought in an additional contribution from NOPEC countries.
The key part of the declaration read: “The desire of…non-OPEC producers to achieve oil market stability in the interest of all oil producers and consumers was recognised. In this regard, the aforementioned countries proposed to adjust their oil production, voluntarily or through managed decline, starting from 1 January 2017 for six months, extendable for another six months, to take into account prevailing market conditions and prospects.”
Since then, the agreement has been extended to the end of this year, which raises the question of what will happen after that.
He added: “The declaration of co-operation has shown what can be achieved through collaboration in challenging times. It helped turn the tide of the oil market, and we now see calmer waters.”
The likelihood is that its life will be prolonged yet again, given that all the countries involved fear a return to the dire market conditions of the middle of this decade. But they will be aware of the danger that an extended period of unusually high prices could tip oil-consuming countries into recession, as happened in 1973-1974 and 1979-1980, severely reducing demand for crude.