Barclays says crude oil gains justified after US pushes for zero Iran exports

Analysts at Barclays Research said Washington's decision to "tighten" the screws on Iran would do the same to the oil market, posing a "material" risk to their 2019 oil price forecasts, while increasing the odds of a potential conflict in the Middle East, but not for the longer term.

"All else equal, if Iranian exports are reduced to zero, it would imply at least a $5/b upside to our current $70/b average price forecast for Brent this year," they said in a research report sent to clients.

On Monday, the US said it would not renew any of the six-month waivers to its sanctions on Iran for those countries purchasing crude from the country, saying that OPEC and others would make up the shortfall in supplies and that Saudi, the US and the United Arab Emirates were "working directly with Iran's former customers".

Saudi, UAE and other OPEC producers would likely step up to the plate, Barclays said, "albeit more reluctantly than last year".

But producers' spare capacity would be reduced and then there was the increased risk of conflict, the investment bank said.

According to data from Refinitiv, thus far in April Iran's exports had already fallen below 1.0m b/d, whereas before sanctions were imposed in May 2018 it was producing nearly 3.0m barrels a day.

But there were structural limits to a sustained rally in prices, Barclays said, pointing to "more responsive" non-OPEC supplies, US tight-oil dynamics and the growing share of emerging economies in new oil demand, with the latter exhibiting a more responsive demand function.

"Therefore, we do not expect a further reduction in Iranian supplies in and itself to have a material effect on oil prices over the longer term."