Oil prices are hovering around $90 a barrel due to simmering geopolitical tensions in the Middle East following the assassination of Iran’s two generals and five military advisors in Damascus.
Markets have remained on the edge as Iran has vowed revenge and has even asked the US to “step aside” as it readies its response to Israel, which carried out that deadly air strike in Syria.
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The uptick in Brent crude spot prices is also due to diminishing prospects of a ceasefire in the ongoing war between Israel and Hamas forces since last October. The oil rally marks a departure from the last six months when prices did not flare up despite the conflict.
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Although in the initial weeks, Brent crude spot prices remained elevated at $90-plus a barrel, they settled down to lower levels of $77.6 a barrel in December 2023. The attacks on shipping in the Red Sea by Yemeni Houthi forces contributed to some upward pressure as oil prices edged up to $85.4 a barrel in March. But they were range-bound as the assumption was that conflict will not engulf the Middle East that accounts for a major proportion of the world’s oil production.
Besides heightened geopolitical risks, an equally important factor behind higher oil prices is the imbalance between supply and demand. The Saudi Arabia-led OPEC+ alliance is constraining supply when the global demand for oil is growing. Last month, several members of OPEC+ agreed to extend additional voluntary cuts of 2.2 million barrels per day (bpd) till end-June 2024 to prop up prices. The oil cartel and its allies reaffirmed this decision at their joint ministerial monitoring committee meeting on April 3. Oil prices flared up with the prospect of tighter supply.
Leading hedge funds believe that the cartel has regained control over the market. OPEC+ has been reducing output since November 2022, which has taken 5.3 million bpd or 5.2% of global supply out of the market. Constrained production at a time global consumption is expected to grow is a recipe for higher Brent spot prices of $90 a barrel and $91.4 a barrel in the April-June and July-September quarters this year according to the US Energy Information Administration.
The outlook on prices could be much worse if Iran targets Israel and US assets. Besides a military response, the US could impose further sanctions on Iran, including curbs on its sale of oil. Iran is the third largest OPEC producer generating 3.23 million bpd in January-March 2024 or 3.2% of global crude supplies. It is true that past sanctions during November 2011 to October 2012 and ongoing ones since July 2018 led to only small declines in global oil supplies by 0.9% and 1.2% respectively, resulting in limited price spikes.
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But the current situation portends a more dismal scenario if Iran retaliates by blockading the Strait of Hormuz — located between Oman and Iran and connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea — through which a fifth of global oil supplies pass daily. Oil prices then would sky-rocket and bring the world economy to its knees. International diplomacy must therefore prevail to contain a wider spread of the Israel-Hamas conflict to the Middle East. The prospect of higher oil prices is definitely not good news for India that imports the bulk of its energy requirements.
Oil prices are hovering around $90 a barrel due to simmering geopolitical tensions in the Middle East following the assassination of Iran’s two generals and five military advisors in Damascus.
Markets have remained on the edge as Iran has vowed revenge and has even asked the US to “step aside” as it readies its response to Israel, which carried out that deadly air strike in Syria.
The uptick in Brent crude spot prices is also due to diminishing prospects of a ceasefire in the ongoing war between Israel and Hamas forces since last October. The oil rally marks a departure from the last six months when prices did not flare up despite the conflict.
Although in the initial weeks, Brent crude spot prices remained elevated at $90-plus a barrel, they settled down to lower levels of $77.6 a barrel in December 2023. The attacks on shipping in the Red Sea by Yemeni Houthi forces contributed to some upward pressure as oil prices edged up to $85.4 a barrel in March. But they were range-bound as the assumption was that conflict will not engulf the Middle East that accounts for a major proportion of the world’s oil production.
Besides heightened geopolitical risks, an equally important factor behind higher oil prices is the imbalance between supply and demand. The Saudi Arabia-led OPEC+ alliance is constraining supply when the global demand for oil is growing. Last month, several members of OPEC+ agreed to extend additional voluntary cuts of 2.2 million barrels per day (bpd) till end-June 2024 to prop up prices. The oil cartel and its allies reaffirmed this decision at their joint ministerial monitoring committee meeting on April 3. Oil prices flared up with the prospect of tighter supply.
Leading hedge funds believe that the cartel has regained control over the market. OPEC+ has been reducing output since November 2022, which has taken 5.3 million bpd or 5.2% of global supply out of the market. Constrained production at a time global consumption is expected to grow is a recipe for higher Brent spot prices of $90 a barrel and $91.4 a barrel in the April-June and July-September quarters this year according to the US Energy Information Administration.
The outlook on prices could be much worse if Iran targets Israel and US assets. Besides a military response, the US could impose further sanctions on Iran, including curbs on its sale of oil. Iran is the third largest OPEC producer generating 3.23 million bpd in January-March 2024 or 3.2% of global crude supplies. It is true that past sanctions during November 2011 to October 2012 and ongoing ones since July 2018 led to only small declines in global oil supplies by 0.9% and 1.2% respectively, resulting in limited price spikes.
But the current situation portends a more dismal scenario if Iran retaliates by blockading the Strait of Hormuz — located between Oman and Iran and connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea — through which a fifth of global oil supplies pass daily. Oil prices then would sky-rocket and bring the world economy to its knees. International diplomacy must therefore prevail to contain a wider spread of the Israel-Hamas conflict to the Middle East. The prospect of higher oil prices is definitely not good news for India that imports the bulk of its energy requirements.
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Oil trouble: Supply-demand imbalance and heightened geopolitical tensions trigger elevated prices
14
3
13.04.2024
Oil prices are hovering around $90 a barrel due to simmering geopolitical tensions in the Middle East following the assassination of Iran’s two generals and five military advisors in Damascus.
Markets have remained on the edge as Iran has vowed revenge and has even asked the US to “step aside” as it readies its response to Israel, which carried out that deadly air strike in Syria.
Also ReadNarratives of hope vs despair
The uptick in Brent crude spot prices is also due to diminishing prospects of a ceasefire in the ongoing war between Israel and Hamas forces since last October. The oil rally marks a departure from the last six months when prices did not flare up despite the conflict.
Also Read India, United States: unequal partnership, limited capabilities, unlikely alliance Bumps on the road: New BoT terms for highway construction may throw pvt investors into risk-aversion mode E-commerce needs a bulwark Column: Resisting west’s carbon imperialism Although in the initial weeks, Brent crude spot prices remained elevated at $90-plus a barrel, they settled down to lower levels of $77.6 a barrel in December 2023. The attacks on shipping in the Red Sea by Yemeni Houthi forces contributed to some upward pressure as oil prices edged up to $85.4 a barrel in March. But they were range-bound as the assumption was that conflict will not engulf the Middle East that accounts for a major proportion of the world’s oil production.
Besides heightened geopolitical risks, an equally important factor behind higher oil prices is the imbalance between supply and demand. The Saudi Arabia-led OPEC alliance is constraining supply when the global demand for oil is growing. Last month, several members of OPEC agreed to extend additional voluntary cuts of 2.2........
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