[ad_1]
The bearish sentiment drove down prices sharply before the Israel-Hamas conflict, and it appears to be weighing on the market again, despite the risks of a broader war.
Robust oil production in the United States has also reassured markets, with supplies from the world’s largest producer recently setting a monthly record, at just over 13 million barrels a day. “Strong oil market fundamentals are prevailing over any fears at the moment,” said Jim Burkhard, vice president and head of research for oil markets, energy and mobility at S&P Global Commodity Insights.
‘We could still be caught by a nasty surprise in the Middle East.’
Helima Croft, head of commodities, RBC Capital Markets
As the fighting continues, traders have figured out that when it comes to oil, there are haves and have-nots in the Middle East. The Gaza Strip produces no oil and Israel little. For there to be a material disruption in supply, the war’s effects would need to spread to the gigantic oil fields of Saudi Arabia, Iraq or Iran.
Early in the conflict, Iran’s foreign minister called for an oil embargo against Israel, stirring memories of the oil embargo of 50 years ago. But times have changed: given concerns about the role that fossil fuels play in climate change and their dependence on oil for revenue, any such move would risk backfiring on countries that imposed such a ban. Iran would risk alienating China, the Islamic Republic’s key customer.
“The risk to supply is very unlikely to come from an independent decision to curtail oil sales by Iran or OPEC,” Eurasia Group said in a recent note. “Any such move would inflict as much — if not more — damage on producers as on consumers.”
A disruption is not inconceivable. Four years ago, a missile attack on a key Saudi facility that was blamed on Iran by American officials temporarily knocked out about half of the kingdom’s oil production.
A plume of smoke follows an Israeli airstrike in the northern part of the Gaza Strip as Israel continues its bombardment and ground offensive seen from Sderot, Israel.Credit: Christopher Furlong/Getty Images
In an extreme case, Iran, the key backer of Hamas, could try to block the Strait of Hormuz through which huge volumes of oil flow to the rest of the world. “I still think that there is considerable risk that this spreads,” said Helima Croft, head of commodities at RBC Capital Markets, an investment bank.
Croft attributes what could seem like complacency about the impact of the war in part to traders having lost money when prices surged to above $US120 a barrel following Russia’s invasion of Ukraine, but then quickly fell.
“The market just has no attention span for these kinds of issues any more,” she said.
Croft, a former analyst at the CIA, said that the seeming success of the early days of the 2003 invasion of Iraq by forces of the US eventually led to a conflict that dragged on for years. “We could still be caught by a nasty surprise in the Middle East,” she said.
Loading
The Biden administration is actively engaged in trying to prevent a widening of the war. Regional oil powers, including Iran, would also prefer to keep tanker traffic moving through the Persian Gulf. Any halts would crimp their own export earnings, while price spikes would risk hurting and alienating their most valued customers.
“It’s likely the conflict remains contained and doesn’t spill over into the big oil producers in the region or the key shipping lanes,” said Bronze of Energy Aspects. “The risks are more from miscalculation and misjudgment,” he added.
[ad_2]
Source link
