The sudden eruption of conflict in Israel, following surprise attacks by Hamas, has sent shockwaves through the global oil market, raising fears of heightened volatility in crude oil prices. As markets brace for potential disruptions, analysts and traders are closely monitoring the situation, with uncertainty casting a shadow over the outlook for oil prices in the short and long term.
Potential Impacts on Oil Prices:
The outbreak of hostilities in Israel has introduced a significant element of fear and uncertainty into oil markets. Experts are concerned that these developments could drive up crude oil prices, impacting both short-term trading and long-term economic considerations.
Karim Basta, chief economist at III Capital Management, emphasized the risks posed by the conflict, stating, “The conflict poses a risk of higher oil prices, and risks to both inflation and the growth outlook.”
Global Oil Inventories and Supply Cuts:
Renowned hedge-fund manager Pierre Andurand, a prominent energy trader, believes that while the Hamas attacks on Israel may not result in an immediate large price spike or significant supply disruptions, the current state of global oil inventories is a cause for concern. He pointed out that low inventories, combined with production cuts by major oil producers like Saudi Arabia and Russia, are likely to lead to further draws on inventories in the coming months.
Andurand added that the market may eventually need increased Saudi supply, but he does not expect this to happen unless Brent crude oil prices reach $110 or higher. Currently priced at around $84, Brent crude’s trajectory remains uncertain as it responds to geopolitical events.
Iran as a Wild Card:
Iran’s role as a significant backer of Hamas adds another layer of complexity to the situation. Andurand suggested that there is a “good probability” that the Biden administration will tighten sanctions on Iranian oil exports, which could further tighten the global oil market.
Helima Croft, chief commodities strategist at RBC Capital Markets and a former CIA analyst, emphasized the unpredictability of Iran’s response to heightened tensions. She pointed out that Israel’s actions could escalate its ongoing shadow war against Iran, raising questions about how Iran might react.
Uncertainty in the Market:
The current situation in the Middle East brings back memories of Iran’s threat to block the Strait of Hormuz in 2011, a critical shipping route for oil. While Iran did not follow through on this threat, the mere possibility underscores the uncertainty that traders face in the oil market.
Chamath Palihapitiya, CEO of VC firm Social Capital, highlighted the growing global geopolitical tensions, including conflicts in Israel and Russia-Ukraine, and OPEC’s production cuts. He suggested that these factors, combined with oil reserves at levels similar to those of the mid-1980s, are likely to push oil prices higher.
Market analyst Phil Flynn noted that while there is no immediate impact on oil supply, the evolving situation over the next 24 to 48 hours could change the dynamics and potentially lead to disruptions.
The eruption of conflict in Israel has injected a significant level of uncertainty into global oil markets. Analysts and traders are closely monitoring the situation, with concerns over the potential for increased oil prices and the impact on supply and demand dynamics. The unfolding events in the Middle East serve as a stark reminder of the geopolitical factors that continue to influence the volatile world of oil trading.