Is Brent oil going over $100/bbl?

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“If there is another disruption in a producer at risk or a rise in Middle East tensions, we are staring down $100” a barrel, said Helima Croft, chief commodities strategist at RBC.

Wall Street Journal By Summer Said

Sharp oil-price movements above $80 a barrel have become the norm, making a break above $100 before the end of the year a real possibility. A big reason: OPEC has little visibility into how much oil it can pump to make up for production shortfalls in politically troubled countries including Iran, say analysts and officials in the group.

Many Gulf-region oil producers are already nearing production records. “If there is another disruption in a producer at risk or a rise in Middle East tensions, we are staring down $100” a barrel, said Helima Croft, chief commodities strategist at RBC.

Brent crude, the global benchmark, has jumped nearly 10% in the past month. But it has been a rocky climb: Brent fell sharply on Thursday amid a broad market retrenchment sparked by a selloff of U.S. Treasurys. Early Friday, oil was trading largely flat at $84.33 a barrel.

Officials from the Organization of the Petroleum Exporting Countries now face two uncertainties: First, estimates vary widely regarding how much production could be disrupted in Libya, Nigeria, Venezuela, Iraq and Iran, the last of which falls under a U.S. ban on oil sales in November. And second, many officials question OPEC’s ability to pump enough relief into the market at short notice to replace potential production outages.

“There is a general trend across the Gulf countries,” said a senior Persian Gulf oil official. “On paper you have the capacity, but in reality it is too difficult to bring it online fast or test your full capacity.”

OPEC pumped just under 32 million barrels a day in April, before President Trump reinstated sanctions on Iranian oil. In one scenario observers envision, Iran would lose 1 million barrels a day of exports.

But if Tehran discontinues all oil exports of 2.7 million barrels a day—and should Libya’s production decline again by 600,000 barrels a day, as it did in June—other OPEC nations would need to increase output by 3.3 million barrels a day, or 10% of the cartel’s output.

Mr. Trump has pressured Saudi Arabia to open the spigots wider before the Iran sanctions take effect on Nov. 5 and the U.S. midterm elections are held the following day. Saudi Arabia in October is pumping 300,000 more barrels a day than in August and intends to increase output slightly in November, Saudi energy minister Khalid Al-Falih said at a Moscow energy conference this week, adding that the kingdom can boost production by another 1.3 million barrels a day. There is “nothing that is going to hold us back,” he said.

Altogether, Iran, Libya, Nigeria and other countries could experience output variations of millions of barrels a day, according to Wall Street Journal estimates based on data from OPEC, the International Energy Agency, U.S. Energy Information Administration and independent analysts.

Uncertainty hasn’t been this high since the beginning of the decade, when a combination of previous sanctions on Iran and revolutions in Arab countries pushed oil prices to $100 a barrel.

The coming sanctions on Iran haven’t followed a predictable playbook. During the Obama administration’s international sanctions on Iran oil sales in 2012, the European Union enforced a full embargo on Tehran’s crude while Asian nations agreed to reductions of about 20%.

By contrast, Mr. Trump’s sanctions are unilateral. China and Turkey are resisting the ban, as they are embroiled in other trade and political disputes with Washington.

Meanwhile, Tehran’s crude exports fell to 1.5 million barrels a day this September, said Sara Vakhshouri, president of SVB Energy International and a former official at the National Iranian Oil Co. That compares with 2.1 million barrels a day in June.

Worsening the uncertainty over Iran’s oil exports is the irregularity of other supplies. Amid tightening market conditions, buyers have been scrambling for oil cargoes in Libya and Nigeria, according to officials in both countries.

Libya’s production has risen by about 1 million barrels a day since June but its oil chief, Mustafa Sanallah, survived a terrorist attack in September that raised fresh concerns about Libya’s own supply risks.

In Nigeria, sabotage frequently interrupts production, a risk that increases as next year’s presidential elections draw closer.

Another enigma is how much OPEC—often considered the oil market’s central bank—really holds in its vaults. The International Energy Agency says OPEC’s spare capacity stood at 2.69 million barrels a day in August, based on communications from Persian Gulf nations.

Conversations with officials in the region suggest the cushion could be lower by over a million barrels a day. Saudi officials say the country’s potential production upswing is closer to 1 million barrels a day rather than the 1.5 million barrels a day it publicly promises.

Meanwhile, Kuwait and the United Arab Emirates would be able to boost output by a combined 200,000 barrels a day immediately and sustainably, a third of their combined nominal spare capacity, OPEC officials say.

The resumption of oil fields jointly owned by Saudi Arabia and Kuwait—seen as a potential replacement for Iranian oil—would only bring 200,000 barrels a day in the short term, rather than its headline capacity of 500,000 barrels a day, other officials said.

At a September OPEC gathering in Algiers, Oman oil minister Mohammed Al Rumhy—a non-OPEC member of the producers’ coalition—said the group had been unable to bring its output to its agreed-upon level.

“That tells me we cannot produce more,” he said.