The conflicts in the Gaza Strip, which threaten to ignite a wider Middle East region, in addition to the enormous human and social costs, are putting oil on fire again.
After last week’s de-escalation in Brent prices, from $95 to $84 a barrel, the Hamas attack and Israel’s immediate response triggered new bullish trends, with concerns rising significantly.
100 dollars per barrel
Thus, the prospect of the black gold hitting the $100 levels again is on the table, with changes in the geopolitical chessboard being daily and stormy. In one of the most pessimistic scenarios that also include Iran’s involvement in the conflicts, the situation is expected to change dramatically for the worse for the markets. Iran is one of the largest oil producing countries of OPEC+.
Fuel
At the moment, international houses and investment banks, including Goldman Sachs, UBS and Morgan Stanley, appear reassuring about the developments, but with the situation being very liquid, no one can prejudge the continuation as the region and the markets in general smell of “gunpowder” ». With winter approaching and the need for fuels ranging from unleaded to diesel and heating oil high, households and businesses are now trying to plan how deep they will have to dig into their pockets in the coming months. Heating oil has already started to be made available in Greece with fairly high prices, while unleaded oil is consistently sold above 1.92 euros per liter, according to the average nationwide price.
At the moment international houses and investment banks including Goldman Sachs, UBS and Morgan Stanley appear reassuring about the developments
The concerns are also reflected in the daily course of prices for both Brent and American crude, as well as natural gas, as presented today by the Economic Post.
The three UBS scenarios
The conflict has led to risk aversion in markets, UBS notes. Brent rose as much as 5% before easing slightly, and that rise “reflected concerns that an escalation of the conflict could disrupt oil supplies, particularly from Iran,” it said. The rise followed an 11.3% drop in oil prices in the first week of the month.
As the Swiss bank notes, three general scenarios are emerging:
– De-escalation. The best outcome, from a humanitarian perspective, would be a rapid cessation of hostilities. Geopolitical risk premiums in markets tend to weaken quickly and would likely do so in the event of a rapid de-escalation.
-Restrained confrontation. The conflict could prove more protracted, but remains between Hamas and Israel in the geographic areas under Israeli control. The impact on global financial markets is likely to fade gradually under this scenario, but the potential for long-term effects on local markets remains.
-Regional escalation. In this negative scenario, the conflict could expand to include other nations, with the possibility of further disruption of oil supplies. “The risks of the conflict being dragged into Iran have increased, in our view. Despite US sanctions on Iran, crude output has rebounded to more than 3.1 million barrels per day (mbpd), a five-year high, with exports hovering around 1.5 mbpd. In an already undersupplied oil market, disruptions to Iranian exports either through widening conflict or tougher sanctions could have a significant impact on oil prices in the short term,” UBS warns. “There is also significant uncertainty about Saudi Arabia’s offer, whether it will relax its production curbs to balance the market in the event of lower Iranian exports, or whether its own production could be directly affected,” it added.
Η Goldman Sachs
Investment bank Goldman Sachs estimates there will be no immediate significant impact on short-term oil market stocks related to Friday’s terror attacks in Israel. But he added that the attacks reduce the likelihood of Israel’s normalization of relations with Saudi Arabia, which would likely boost Saudi output over time by increasing supply and lowering prices.
Oil prices have reversed course and recovered from heavy losses in the past two weeks after a terror attack by Hamas in Israel fueled fears of a wider regional conflict. Oil prices jumped nearly 4% in the first day of trading after the attack, with Brent crude trading at $88 a barrel. Goldman still sees Brent climbing to $100 by June 2024.
Η Morgan Stanley
Before the Hamas attack, oil’s four-month rally had stalled, with prices falling spectacularly by the day of the attacks, thanks to a smaller-than-expected decline in US crude inventories accompanied by a much larger-than-expected increase in fuel stockpiles.
Morgan Stanley has assessed the impact on oil markets from the Hamas attack on Israel and currently believes that because neither Israel nor its immediate neighbors are major oil producers, the near-term risk to the supply of black gold is limited. However, this could change dramatically if the conflict spreads to other countries in the region.
Source: OT
