Oil prices have jumped $7 a barrel in the last few days, largely thanks to the intensifying Israel-Iran conflict. The situation has raised concerns among analysts and market participants, leading to a heightened level of uncertainty in the oil markets. John Evans, an analyst at oil broker PVM, told the BBC that continued conflict has put a long-term “$10 risk premium in the price” of oil. Taken together, this perfect storm is hitting the market hard.
Even this latest conflict, to an extent, traces back to Israel’s dramatic and historic preemptive strikes against Iran. This only began five days of appalling, horrific fighting. Iran escalated the conflict further by resuming ballistic missile operations in response. The war has created a huge amount of uncertainty in the oil markets. Evans further describes this prevailing climate, noting the dire threat of more cuts to come.
Rumors are circulating that the Iranian attack on Israel this past week was successful in hitting Israel’s Bazan oil refinery complex. In a classic case of retaliation, Israel bombed the South Pars field, the world’s largest gas field. This unprecedented attack made it such that Tehran had no choice but to temporarily halt production. These changes have helped ramp up a tense landscape in oil trading as analysts continue to watch what’s happening.
Perhaps the most important point, made by Stephen Schork, editor of The Schork Report. He warned that a major escalation in the conflict would likely push oil prices far higher. Of note, he pointed to a 5% risk that oil prices rise above $103/bbl. This scenario may become reality in just over five weeks. Schork was clear that anything disruptive to flows out of the Persian Gulf would send crude prices soaring. By the end of summer, prices could jump to $160 per barrel.
Evans echoed similar sentiments regarding market volatility. He remarked, “The situation is as fluid as the underlying commodity it mostly affects and while there is a fraternal ‘your guess is as good as mine’ in future price divination, positioning will continue to be at least defensively long.” His remarks underscored just how haywire the current market dynamic has gone.
Leading up to these events, Per Lekander, founder of Clean Energy Transition, forecasted a doomsday scenario for oil markets. He called the times “really bad,” as exasperated by high supply growth from OPEC and non-OPEC producers against the backdrop of weak demand. Meanwhile, the climate emergency deepens, and the fighting is escalating. Lekander is now of the view that lower oil prices are more likely to emerge after hostilities end. He pointed out that producers are hedging like crazy and doing everything they can to expand their production in light of this uncertainty.
As of 12:48 p.m. London time, international benchmark Brent crude futures stood little changed at $76.43 per barrel, while U.S. West Texas Intermediate futures for July delivery traded flat at $74.86 per barrel. Analysts are still eagerly anticipating any new information that may change the pricing picture.
Schork highlighted the potential long-term implications of the conflict on oil markets, stating, “We are now facing the biggest threat to the oil markets since Iraq invaded Kuwait in 1990 and perhaps even greater than the 1974 Arab oil embargo.” He noted that the market appears to be leveling off right now. Still, traders are nervous, on the lookout for any headline that might move prices.
“We’re kind of stabilizing right now. I think we’re waiting for that next headline to come out and really, I think that anyone who does not think oil could go higher, I really think they are trading on hope and not reality.” – Stephen Schork