Although the situation on the oil market has recently calmed down somewhat after strong increases at the beginning of the week, the conflict in the Middle East could expand following the Hamas attack on Israel. Experts expect oil prices to rise.
• OPEC expects oil demand to rise more strongly
• Low oil inventories and production cuts in Saudi Arabia and Russia
• Sanctions against Iran could be enforced more strictly after attack on Israel
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According to the Organization of Petroleum Exporting Countries (OPEC), global oil demand will increase more than previously expected in the longer term. For this year, OPEC expects global oil demand to be 102 million barrels per day, and by 2045 demand is expected to rise to 116 million barrels per day. This means that the new forecast is around 6 million barrels higher than that of a year ago. Rising demand could push oil prices higher in the coming years, but the supply side could also play its part in driving oil prices higher.
Attack on Israel
The Islamist Hamas attack on Israel at the weekend was the worst bloodbath since the founding of Israel. Hundreds of people were killed, thousands injured and many kidnapped. Israel responded, mobilizing several hundred thousand reservists and launching massive counterattacks in the Gaza Strip. Although Israel and the Gaza Strip do not play a particularly important role in oil supplies, there are concerns in the market that the conflict in the Middle East could spread. The media is reporting on Iran’s possible involvement – even though the country has denied the accusation. The country lies on the Strait of Hormuz, through which a large proportion of the region’s crude oil is transported. Iran had threatened to block the sea route several times in the past. This would have a huge impact on the supply of oil from the Middle East.
Experts expect rising oil prices
Karim Basta, chief economist at III Capital Management, said, “The conflict poses risks of higher oil prices and risks to both inflation and growth prospects,” according to FORTUNE.
Social Capital CEO Chamath Palihapitiya also expects oil prices to rise. “With two hot wars (Israel-Hamas and Russia-Ukraine) and a $1.5 million war, how can oil prices not shoot back up now?” OPEC cutting barrel production with an SPR [Strategic Petroleum Reserves]which is at the same level as in the mid-1980s?” FORTUNE quotes him.
Phil Flynn, analyst at Price Futures Group, told MarketWatch: “There will definitely be fear trading.” He explains: “Although there is no direct impact on supply in the short term, it is obvious how things evolve over time.”
Crude oil trader: Market will have to ‘beg for more Saudi supply’
Hedge fund manager and famed crude oil trader Pierre Andurand doesn’t expect a major impact on oil supplies or a big price increase in the next few days, FORTUNE reports. But he acknowledged that global oil inventories are low “and production cuts in Saudi Arabia and Russia will lead to further destocking in the next few months.” Saudi Arabia cut its production by one million barrels per day in July, and Russia followed suit in August by cutting its exports by around 300,000 barrels per day. Both countries recently announced that they would continue the cuts until the end of the year.
In addition, there has been “a very strong increase in Iranian supply in the last six months.” This is due to the weak enforcement of sanctions against Iran. However, the attack on Israel could now change this. “Since Iran is also behind Hamas’ attacks on Israel, there is a good chance that the US government will begin to more strictly enforce these sanctions on Iranian oil exports,” Business Insider quoted Andurand as saying. “That would further tighten the oil market.” Therefore, the market will “at some point have to beg for more Saudi supply.” But Riyadh is unlikely to start producing more crude until Brent prices reach $110 a barrel, Andurand said.
Editorial team finanzen.net