Brent crude price expected to increase amid fears of a’spiralling crises’ across the region
After Hamas’s deadly attack on Israel , the markets are bracing for a spike in oil prices. This has sparked fears of an “escalating” crisis throughout the Middle East.
Brent futures rose around 2pc, to $86.50 per barrel when trading started in New York Sunday night. Fears about future supply prompted the increase.
Israel may not be an oil exporter itself, but the conflict will affect the entire region.
This war has echoes with the Yom Kippur War of 1973 that led to an Arab oil embargo. Opec members punished US support for Israel by blocking oil exports. Fuel prices rose and an inflation crisis was triggered.
Experts don’t expect a similar reaction this time as the Opec leader Saudi Arabia is now much closer to Washington.
Suhail al Mazrouei, the United Arab Emirates Energy Minister, responded to a question about how Opec will respond to Sunday’s situation in Israel: “We don’t engage in politics. We govern by supply and demands, and we don’t consider what each country did.”
There are fears that the war may disrupt Iran’s oil exports. The Gulf state supported Hamas, and openly praised their attack on Israel.
Ole Hansen is the head of commodity strategy for Saxo Bank. He said, “What the market believes will be the potential biggest risk will be the supplies from places such as Iran.” Since 2018, Iran’s oil industry has been subject to sanctions. However, under the leadership of President Joe Biden and improved relations between Washington DC and Tehran, enforcement has loosened.
Mr Hansen stated that the conflict could lead to tensions between both countries. Joe Biden pledged his “rock-solid” support for Israel.
Mr Hansen stated: “Right Now, the supply is not at risk but the market is concerned and market concerns can often drive markets more so than the actual fundamentals.”
He predicted that the oil price could rise by $5 per barrel once trading began. Brent crude’s price was under $85 last Friday.
Bjarne Shieldrop, Chief commodities analyst at SEB Bank, said that there will always be a concern about this spiraling effect in the Middle East.
A restriction on Iranian exports will impact prices, as supplies are already scarce. Russia, Saudi Arabia and other oil-exporting countries have curtailed their exports of crude this year to support prices. The cuts are now extended through the end this year.
The exports of Iran helped to cover this shortfall. This year, the country increased its production by 410,000 barrels a day.
Mr Hansen stated: “One the largest export increases that we have seen in this year came from Iran along with US shale. If the finger is pointed at Iran, we could see tightening of sanctions against Iran which could potentially tighten the market.
Oil would be back at the same price as last week if oil were to increase to $90 per barrel. Brent crude’s price has fallen by 12pc after hitting a high of over $96 at the beginning of September amid signs of a slowing economy around the globe.
A sustained rise in oil prices could prolong the fight against inflation.
Capital Economics estimates that if oil prices reached $95 per barrel before the end of this year, they would add 0.4 percent to global inflation in the following year. It takes four weeks for oil price increases to be reflected in higher petrol prices.
Mr Schieldrop stated that oil prices could rise as high as $87.50 this week.
He said: “We’ve had a huge sell-off in September. The market is ready for a bullish response.” The market could be stronger simply because we’ve had a big sell-off behind us.
“It will be a long time before this [conflict] leads to disruptions in supply, unless this war suddenly spirals into chaos that engulfs the Middle East. This would be a huge surprise, and not our main scenario.
You never know. “It’s always unsettling when such things happen in the Middle East.”
The stock markets in the Middle East all fell on Sunday. Israel’s TA35 index fell by 6.4pc – its largest loss in over three years. Saudi Arabia’s Tadawul All Share Index dropped by 1.6pc.