ANZ now expects Brent at $105 by year-end as physical market stays tight

A year-end projection of $105 implies limited respite for oil-importing economies, leaving Japan, India and South Korea among Asian buyers with the greatest currency and trade-balance exposure. That imbalance is hard to miss. The bank's upside case runs roughly $15 above its central forecast, while its weaker scenario requires breakthroughs on both the diplomatic and shipping fronts, leaving the risk tilted toward higher prices. That backdrop helps energy shares and producer currencies such as the Canadian dollar and the Norwegian krone, while adding to upward pressure on headline inflation and bond yields in economies that purchase fuel. Traders are likely to remain very responsive to news about Iran and about tanker movements along Middle East shipping routes.

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Australian inflation is also likely to keep facing upward pressure from an expensive oil market:

• RBA set for back-to-back hike after hot CPI, says Natixis’ Garcia Herrero

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ANZ believes oil will stay expensive until vessels can move freely again, and that a written peace agreement on its own will not be enough.

Summary:

• ANZ increased its Brent forecast for 31 December to $105 a barrel from $95
• The bank says physical constraints behind the tight market are unlikely to ease before year-end
• If the Iran conflict were to escalate materially, Brent could climb to $120 or more
• A credible deal in the Middle East and materially better shipping could pull Brent back toward $90 to $95
• Friday's Reuters report carried the forecast

Reuters reported on Friday that ANZ has raised its year-end Brent call to $105 a barrel from $95, with the bank saying the physical supply-and-demand factors behind the tight market will probably not ease before the close of December.

The revised figure, which covers the bank's call for 31 December, is $10 higher than the previous one. It is built on the view that supply-side pressures will continue for at least the next two months. Physical tightness describes the supply-demand balance for barrels that can be delivered immediately, as opposed to futures prices that reflect positioning or market mood.

Around its base case, the bank mapped a wide spread of outcomes, with the Iran conflict as the main variable. ANZ says a material escalation of the conflict could see Brent rise to $120 a barrel or beyond. In the opposite direction, a credible diplomatic deal in the Middle East, along with a material improvement in shipping, could bring prices down toward $90 to $95 a barrel.

The focus on shipping is telling. ANZ's downside scenario depends on a diplomatic resolution and a clear improvement in shipping, indicating that the bank considers tanker-route disruption a central source of today's tightness. A ceasefire or political agreement alone may not be enough to lower prices quickly if vessels continue to face restrictions or elevated threats.

The change adds to the discussion of how high energy costs feed into inflation and interest-rate decisions around the world. Central banks from Australia to Japan and Europe have cited fuel prices as a major driver of recent inflation, and Brent staying above $100 for an extended period would maintain that pressure into next year.

At present, ANZ's baseline view is that oil will remain elevated through the end of the year, with Middle East events mostly determining the balance of risks.