Iran tension to hold oil at $115 a barrel, says Barclays Wealth’s Gardiner

Oil is expected to remain at elevated levels over the coming 12 months, Barclays Wealth’s head of global investment strategy predicts, especially if tension with Iran continues.

Presenting his outlook for 2012, Kevin Gardiner says oil has been the “stand-out” commodity of 2011, managing to outperform the perceived safe haven of gold.

Figures from Barclays Capital show brent crude oil was up 13.4% in the year to December 15. Gold, on the other hand, rose 10.8%. Gardiner predicts that oil will average $115 a barrel in 2012, up from $112 in 2011.

Geopolitical factors in key oil-producing countries, such as the Libyan oil outrage during the recent civil unrest and the violence seen after the Nigerian presidential elections, drove the price rises of 2011.

Gardiner says the geopolitical tensions emerging in Iran suggest this trend will continue throughout 2012.

“This time the focus has been on Iran, following the release of the UN International Atomic Energy Agency report released in November,” he explains.

“While there is still much uncertainty about Iran’s nuclear intentions, it’s the risk to oil markets, particularly the rising tension in the Iran-Israeli relationship, which is most important.”

Gardiner points out that any Israeli strike on Iran, as Israel warned it would carry out if action is not taken at an international level, could damage oil output. Meanwhile, the “mere threat” from Iran to close the vital Strait of Hormuz waterway in response to any strike will drive up oil prices.

In addition, the strategist notes that the price of oil could be pushed up further if Europe and the US continue to implement sanctions, including an outright ban on oil imports, against Iran.

This week, Iranian vice-president Mohammad Reza Rahimi said “not a drop of oil will pass through the Strait of Hormuz” if sanctions already implemented by the international community are widened. Habibollah Sayari, the head of Iran’s navy, also claimed that it would be “easy” to close the strait.

Looking to other commodities, Gardiner expects investor demand to continue to drive the price of gold and silver next year. He sees gold as averaging $2,000 per ounce in 2012, rising from the $1,619 seen this year.

However, he adds: “When monetary policy tightening cycles in the developed world eventually kick into gear, appetite for safe haven assets will likely diminish slowly, which should eventually cause prices to ease from current levels in the long term.”

By 2015, gold will fall to about $1,400 per ounce, he predicts.

Industrial metal prices are also expected to remain elevated in 2012, says Gardiner. Although weak demand from the Organisation for Economic Co-operation and Development area, tightening credit in China and deteriorating risk appetite will create issues for these commodities, prices will be supported by supply constraints.

The price of agricultural commodities will be bolstered by adverse weather conditions, low inventory levels and high levels of demand, the commentator adds.

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