Bjarne Schieldrop, chief commodities analyst at SEB, told CNBC that oil prices could surge above $200 a barrel if escalating tensions in the Middle East led to a significant reduction in Iranian crude production.
Schieldrop noted that Iran exports more than 2 million barrels of crude oil per day. If the growing conflict in the region destroyed Iran's oil infrastructure, it would significantly reduce OPEC+'s spare oil production capacity.
Schieldrop added that this not only means higher oil prices, but also amplifies market uncertainty. "The next question is what happens in the Strait of Hormuz, which of course increases the risk premium on oil."
A rise to $200 per barrel for Brent crude, the international benchmark, would represent a gain of about 160% from current prices. At press time, Brent was trading around $77.5 per barrel, up nearly 10% from Tuesday’s bottom. On Tuesday, Iran launched a major missile attack on Israel in response to an Israeli ground offensive in Lebanon. Traders are watching for further escalation, with a particular focus on potential retaliation from Israel.
Despite the gains, Brent crude is still trading about 16% below this year’s peak of $91 a barrel.Other analysts appeared to agree with Schieldrop, noting that geopolitical tensions will remain insignificant until investors see actual damage to oil infrastructure.
“The market is complacent about geopolitical risk. If you don’t see oil production shut-ins, like we saw recently with Libya, the impact is irrelevant,” Rapidan founder Bob McNally told CNBC. “I think they’re hoping and expecting that the Israeli response might be somewhat restrained and that we don’t see material disruptions to energy production and flows,” he added.
Still, some investors are betting on the possibility of damaged oil production, according to Bloomberg. Nearly 27 million barrels of Brent crude call options with a strike price of $100 were traded on Wednesday, meaning traders are hedging against the risk of oil prices rising to triple digits.
Rising tensions between Israel and Iran are not the only factor affecting oil prices. OPEC+ will decide in December whether to roll back some of its production cuts, freeing up more crude supply.
The alliance initially limited production to support oil prices, but lost market share in the process, while some members failed to comply with production quotas, reportedly drawing the ire of OPEC leader Saudi Arabia.
(The Wall Street Journal) Citing OPEC+ representatives, Saudi Arabia warned that oil prices would fall to $50 a barrel if members ignored production curbs. Some saw this as a veiled threat that Saudi Arabia could launch a price war. But OPEC later called the report "completely inaccurate and misleading."
Article forwarded from: Jinshi Data
