Iranian crude exports will remain a key source of market uncertainty in 2019, according to Fitch Solutions Macro Research (a unit of Fitch Group).
"The US adopted a softer approach to sanctions than had been anticipated by the market, granting waivers to eight buyers of Iranian crude. The waivers will expire in May and the Trump administration has offered no concrete guidance as to whether the waivers will be extended, or what conditions must be met by the buyers to secure them," Trend reports citing the company’s outlook.
In Iran, production has been hit by US secondary sanctions; shrunken export volumes will continue to back-in supply over the coming quarters, according to Fitch Solutions.
As for the OPEC decision to cut oil output, the company believes that the exclusion of Venezuela and Iran, where production is set for further (involuntary) declines, will demand deeper cuts from other producers and offer greater fundamental support to the market.
Regarding the oil prices, Fitch Solutions, holds to its current forecast for global benchmark Brent, at an annual average of $75 per barrel for 2019.
"Our outlook is unchanged in the wake of the OPEC and non-OPEC Ministerial Meeting on December 7, during which the members of the Declaration of Cooperation (OPEC+) decided to collectively reduce output by 1.20 million barrels per day from October 2018 levels (September for Kuwait). The cut will take effect on January 1, 2019 and will be subject to review after six months," said the report.
Of the total, 0.80 million b/d will be provided by OPEC and 0.40 million b/d by non-OPEC.
"The size and nature of the cut agreed by OPEC+ supports our price outlook for 2019. The headline number fell slightly short of our expectations (1.26 million b/d). In some ways, though, the cut was more substantial than we were anticipating. Crucially, it excludes Iran, Libya and Venezuela. Mismanagement and chronic underinvestment has driven Venezuelan production into heavy decline, with output falling by more than 550,000 b/d over January to November," the company said.
Fitch Solutions believes that ongoing cohesion within the group will be key to maintaining a floor under Brent.
"Questions continue to be asked over the role and relevance of OPEC, with Qatar’s decision to exit the group adding further fuel to the fire. In our view, that decision is better viewed through the lens of Qatar’s strained relations with Saudi Arabia, its relative lack of influence within OPEC and its strategic focus on LNG," said the report.
OPEC and its collaboration with Russia has been one of the key factors driving prices higher over the last two years, according to the company.
Fitch Solutions expects believe that its decision to remove 1.2mn b/d of supply from the market has done little to move Brent back towards its early- October highs
"However, it has stabilized prices in the low-60s, following eight weeks of heavy selling pressure. Had the group OPEC+ not taken action, the downside to Brent would have been substantial, in our view. In putting a floor under the market, the group can maintain prices at a level that is fiscally acceptable to most members and can stimulate demand in emerging markets (EMs)," the report reads.