IHS: Crude Ripe for High Prices

PALM DESERT, California - Crude oil prices are more likely to maintain recent gains or rise further than they are to decrease, an analyst told a lubricants conference here yesterday, citing looming United States sanctions against Irans oil petroleum industry and an already tight demand-supply balance.

IHS Markits Blake Eskew said Iranian crude exports have already fallen significantly this year and will probably drop more by early next year, contributing to an environment where demand will be barely keeping up with supply. At that point, he told the annual meeting of the Independent Lubricant Manufacturers Association, the global market will be especially vulnerable to any significant disruption in supply.

Disruptions of various types are common for the industry, he said, adding that the market has had an unusually small number of them for the past year.

As long as those sanctions remain in place, its very difficult to see how we could get back to the low [crude] prices of a few years ago, said Eskew, a vice president at IHS Markit, a London-based consultant and market research firm. The sanctions are coming back into a market that has a calm demeanor. The real problem is that after those sanctions come back into effect, if you have a return of [normal levels of] disruptions you have a chance for very, very high oil prices.

Prices for dated deliveries of Brent crude have climbed back into the mid-$80s per barrel recently, while West Texas Intermediate is in the mid-$70s per barrel. About a year ago, dated deliveries of Brent Crude was in the mid-$50s per barrel range, while West Texas Intermediate was around the $50 per barrel mark.

Iran is one of the worlds largest crude suppliers and was exporting an average of roughly 2.3 million b/d in the first half of 2018. That number decreased 500,000 b/y by the third quarter, and IHS forecasts that it will decrease an additional 600,000 b/d by the first quarter of 2019.

Crude costs are one of the main factors affecting prices for base stocks used by the lubricant industry. Base stock prices have risen somewhat, but many observers agree theyve been restrained by a combination of lackluster demand and growing supply.

The outlook for crude may be stormy, but Eskew had encouraging words regarding the impact that electric vehicles, including hybrids, will have on the lubricants industry. Some analysts have warned that EVs will be a generational disruptor for the industry because vehicles running solely on battery power use a fraction of the lubricants consumed by those powered by internal combustion engines.

IHS forecasts that EVs will reduce global demand for passenger car motor oils by 7 percent from what it would otherwise be by 2040. The impact is lessened, Eskew said, because of the slow turnover of the global vehicle population.

Penetration of electric vehicles will reduce lubricant volumes, but the impact on global demand will be limited, he said.