Commerzbank expects crude to ease on extra supply from Iran, US

Quantum Commodity Intelligence - German lender Commerzbank expects crude oil prices to fall during the course of the year as a likely Iran deal and higher US output will bring more oil to the market, going against the view of most of its banking peers.

While it upped its Q1 Brent forecast from $80/b to $90/b due to the current risk premium amid Russian tensions, it expects prices to slide to $85/b in Q2 and drift lower to $80/b by year end.

"We expect oil prices to fall during the course of the year, as more oil is likely to reach the market thanks to the high price level," the German bank in its Commodity Spotlight Energy report on Tuesday.

The supply relief will come from Iranian oil exports, as the ongoing negotiations between Iran and the west on a nuclear deal are in a "decisive phase and an agreement seems possible," which could result in an additional 2 million bpd of exports.

The bank also expects US oil production to rise by 700,000 bpd – most notably in the Permian basin – as higher prices will attract a boom in shale production levels.

At the same time, high energy prices are likely to "leave their mark on demand" as the bank sees global energy consumption as more elastic than its peers.

Commerzbank bearish view comes against the view of most other investment banks which expect crude oil prices to rise during the year amid a structurally tight market and as global oil demand is likely to hit a record by the end of the year.

Goldman Sachs which sees the current hurdles in a potential Iran deal as "stubbornly high" expects Brent crude oil prices to rise to $105/b this year, while RBC Capital Markets expects it to reach $115/b by the summer.

Meanwhile, Swiss bank UBS expects prices to hit $100/b by the end of the year and advised its clients on Monday to "take long positions in longer-dated oil contracts in Brent or selling Brent's downside price risks."