Analysts describe the oil markets as complacent against the risks posed by the escalation of conflicts in the Middle East, while there is also the ominous forecast that oil futures will reach $200 per barrel.
Israel could target Iranian oil refineries in retaliation for Tuesday night’s attack, in which Tehran fired about 180 ballistic missiles at Tel Aviv and other targets across the country, in a dramatic escalation of the conflict between the two countries .
That prospect would be a rude awakening for oil market bears, analysts who spoke to CNBC said.
Oil at 200 dollars a barrel
International benchmark Brent crude futures for December were trading up more than 2.1% at $75.50 a barrel on Thursday, while U.S. West Texas Intermediate crude was at $71.75, a gain of of the order of 2.3%.
However, by Tuesday afternoon the oil market was moving lower, despite Israel’s ground invasion of Lebanon and Israel’s assassination of Hezbollah leader Hassan Nasrallah representing an escalation of the conflict but not affecting the oil market.
Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), is a major player in the global oil market. So much so that it is estimated that up to 4% of the world’s supply could be at risk if Iran’s oil infrastructure is targeted by Israel. According to estimates, the country accounts for approximately 5% of oil production.
Speaking on CNBC’s “Street Signs Europe” on Thursday, Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, explained that escalating tensions in the Middle East could have dramatic consequences for the market.
“If … you actually shut down the oil facilities in Iran, causing exports to drop by 2 million barrels, then the next question in the market will be what happens now in the Strait of Hormuz? This, of course, would add a significant risk premium to oil,” Schieldrop said.
Asked how much oil prices could soar in such a scenario, Schieldrop replied: “If you remove the facilities in Iran, you will easily go to 200 dollars and more”.
What does the Straits of Hormuz mean for oil?
The biggest risk to the oil market is the closing of the Straits of Hormuz, Andy Lipow, president of Lipow Oil Associates, told CNBC before Iran’s attack on Israel, and estimated that oil prices could jump 30 dollars a barrel if it happens, he added.
“If events move quickly, any material disruption to Iran’s oil supplies or oil exports through the Strait of Hormuz could drive oil prices well above $100 a barrel,” noted Josh Young, CIO of Bison Interests.
The strait, between Oman and Iran, is a vital channel through which about a fifth of the world’s oil production flows each day, according to the US Energy Information Administration. It is a strategically important waterway that connects crude producers in the Middle East to key markets around the world.
Israel’s response is in focus
Oil prices have risen more than 4% since the start of the week as traders closely monitor heightened geopolitical risks in the Middle East.
“It all depends on how the conflict escalates further, and I think it goes without saying that Israel will retaliate after the latest Iranian attack – and that will happen within about five days probably, before the one-year anniversary on October 7.” estimates SEB’s Schieldrop.
“Will it be … a weak attack like we saw in April and then everything will calm down? Or will it be a more violent attack targeting military installations, possibly nuclear and oil installations are also on the table. That is what concerns the market at the moment,” he added.
The complacency of the markets
Energy analysts have warned of a prevailing bearish sentiment in the market, even as rising tensions in the Middle East threaten to reach a new boiling point.
“I think, from an oil market perspective, the market is so complacent right now,” Amrita Sen, founder and director of research at Energy Aspects, told CNBC’s “Squawk Box Europe.”
“And look, since 2019, since Abqaiq, geopolitical risks have not led to losses in oil supply,” he said.
In 2019, Saudi Arabia shut down half of its oil production due to a drone attack on the Abqaiq oil refinery, and there were no losses in supply. However, it led to a rally in oil prices.
“This is why the market is tired,” he continued. “It was Abqaiq, it was Russia-Ukraine, but I think this is a bit different.”
The US attitude
Asked about the prospect of Israel retaliating against Iran’s energy infrastructure, Sen said the US is likely to be clear in its diplomatic messages to the Jewish state.
“That’s definitely something that every side is talking about, right? The US is involved in this. I don’t think we can forget the fact that we have an election in the US in a few days, so I think their message is very clear: don’t knock energy infrastructure. Likewise, don’t hit nuclear facilities,” he concludes
Source: ot.gr
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