A $105 year-end call implies little relief for crude-importing economies, with Asian importers including Japan, India and South Korea most exposed through their currencies and trade balances. The asymmetry is notable. The bank’s upside risk sits about $15 above its base case, while its downside scenario needs both diplomatic and shipping breakthroughs, so the risk skew still favours higher prices. That supports energy equities and producer currencies such as the Canadian and Norwegian kroner exchange rates, and keeps upward pressure on headline inflation and bond yields across fuel-importing economies. Traders are likely to stay highly sensitive to headlines on Iran and on tanker traffic through Middle East shipping lanes.
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High oil prices will also keep the upside pressure on Australian inflation:
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ANZ thinks oil stays expensive until the ships move freely again, and a peace deal on paper won’t be enough on its own.
Summary:
- ANZ raised its 31 December Brent forecast to $105 a barrel from $95
- It says physical constraints keeping the market tight are unlikely to ease before year end
- A material escalation in the Iran conflict could push Brent to $120 or higher
- A credible diplomatic breakthrough plus improved shipping could bring Brent back towards $90 to $95
- The forecast was reported by Reuters on Friday
ANZ has raised its year-end forecast for Brent crude oil to $105 a barrel from $95, arguing that the physical constraints keeping the oil market tight are unlikely to ease before the end of December, Reuters reported on Friday.
The upgrade, which applies to the bank’s forecast for 31 December, marks a $10 increase. It reflects a judgement that supply-side pressures will persist for at least the next two months. Physical tightness refers to the balance between supply and demand for barrels available for delivery now, as distinct from futures pricing driven by positioning or sentiment.
The bank set out a wide range of outcomes around its base case, with the Iran conflict the main swing factor. According to ANZ, a material escalation in the conflict would create the risk of Brent rising to $120 a barrel or higher. In the other direction, a credible diplomatic breakthrough in the Middle East, combined with a material improvement in shipping conditions, could see prices move back towards $90 to $95 a barrel.
The emphasis on shipping is notable. ANZ’s downside scenario requires both a diplomatic solution and a clear recovery in shipping, which suggests the bank sees disruption to tanker routes as a key source of the current tightness. A ceasefire or political agreement on its own may not be enough to bring prices down quickly if vessels still face restrictions or elevated risks.
The revision adds to the debate over how high energy costs will feed into inflation and interest rate decisions worldwide. Central banks from Australia to Japan and Europe have pointed to fuel prices as a key driver of recent inflation, and a sustained Brent price above $100 would keep that pressure in place into the new year.
For now, ANZ’s central view is that oil will remain elevated through year end, with the balance of risks set largely by events in the Middle East.
This article was written by Eamonn Sheridan at investinglive.com.