By Huang Yu, Securities Times reporter -- Sabine Schels, Senior Director and Global Commodities Strategist at BofA Merrill Lynch Global Research, stated that Iran's disruption of oil supply could potentially push oil prices up by as much as $40 per barrel.
Recently, due to the US and EU imposing various economic sanctions on Iran, the country’s oil exports have significantly decreased. Additionally, the turbulent situations in countries such as Syria and Yemen within the Middle East region continue to provide upward pressure on oil prices due to geopolitical factors.
Sabine Schels mentioned that if we were to return to a period similar to Libya's conflict around a year ago, they estimate that oil prices would rise by $20 per barrel due to the production shortfall from Libya. Iran's export scale is roughly double that of Libya, so if Iran's oil production were to be interrupted due to geopolitical factors, they expect oil prices to surge by $40 per barrel.
Since last October, Brent crude oil prices have risen by approximately 27%, while the April New York crude oil futures contract has increased by over 33%, despite global oil demand actually decreasing by 300,000 barrels per day in the fourth quarter of 2011, marking the first decline since the 2009 crisis.
Schels believes that the recent climb in oil prices over the past few months can mainly be attributed to further relaxed monetary policies and stimulus measures. In the $20 increase in Brent crude oil prices, he estimates only $5 is due to the Iran issue, while the remaining $15 is due to liquidity and ongoing quantitative easing policies. The continued increase in money supply leads to a further decline in currency value compared to real assets. Liquidity has a significant impact on oil prices.
Schels predicts that if Iran decides to block the Strait of Hormuz, oil prices will reach record highs because around 20% of the world's oil passes through this strait. This could lead to a substantial increase in oil prices, easily surpassing $200 per barrel.
Schels explained that from previous instances of oil price surges, it is evident that the global economy cannot effectively absorb the impact of high oil prices. According to their projections, whenever oil or energy expenditures reach 9% of GDP, there follows a significant economic contraction. Currently, oil expenditure accounts for 8.3%, so the institution believes that the upper limit for sustainable oil prices this year is $135 per barrel.
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