Citi says Trump’s new world order could lead to $80 oil

This year may be anything but staid for the oil market as Citigroup predicts wildcards including war, Middle East tensions, Donald Trump and Kim Jong-un driving crude toward US$80 a barrel.

After prices were boosted by Opec’s curbs in 2017, the US president has shifted the focus to geopolitical risks, with his pursuit of sanctions on Iran and North Korea potentially having significant consequences. That is in addition to political disturbances in some Opec members like Iraq and Libya that could see crude supplies decline, boosting oil to levels between $70 to $80, it said in a report on Tuesday.

“Many of these uncertainties have significant consequences for commodities,” Citigroup analysts including Ed Morse wrote in the report titled Wildcards for 2018: Trump looms large along with systemic risks. “It is not a surprise that our list of potential wildcard events in the year ahead retains a focus on the United States.”

The most wide-ranging systemic risk to commodities this year could be Mr Trump disturbing the political world order, Citigroup said. Re-imposing of US sanctions on Iran, the third-biggest Opec producer, is likely to dislocate at least 500,000 barrels of the Middle Eastern nation’s oil exports, resulting in a $5 price increase to oil, the bank said.

The rhetoric from and toward North Korea has also escalated in the past few months, carrying the “non-negligible risk” of turning into a military conflict, according to Citigroup. Stockpiling of strategic goods such as crude may accelerate with the risk of war.