Escalating tensions in the Middle East send oil prices higher

Concerns about escalating tensions in the Middle East and their potential to disrupt oil prices loomed over the first day of a major energy sector conference that opened Tuesday in Calgary.

The Israeli army said on Tuesday that Iran had fired missiles into the country.

Global oil prices jumped following the news. The American reference price, the West Texas Intermediaterose nearly 5%, surpassing $71 a barrel at midday Tuesday. It ultimately closed up $1.66, or 2.44%, at $69.83 per barrel.

Calgary, currently hosting one of the energy sector’s largest annual conferences, is home to the corporate headquarters of Canada’s oil and gas sector, where fortunes rise and fall with commodity prices.

Large companies establish their budgets and production plans based on short- and long-term assumptions about the evolution of the price of oil.

The escalation is obviously worryingsaid Peter Tertzakian, a Calgary-based energy economist and founder of theARC Energy Research Institutein an interview on the sidelines of the conference. No one wants to see highly volatile prices, and certainly no one wants to see conflict.

Oil prices have been dragged down this fall by weaker-than-expected Chinese demand and uncertainty surrounding Organization of the Petroleum Exporting Countries (OPEC) plans.

Fears of supply disruptions

Tuesday’s events in the Middle East raise fears of supply disruptions if the conflict between Iran and Israel escalates or spreads across the region.

Peter Tertzakian notes that a quarter of the world’s oil supply passes through the Strait of Hormuz, which lies between Iran and Oman. The possibility that Iran could cut off oil deliveries across the strait is something that could significantly shake the global economy, he says.

Al Salazar, director of intelligence for energy data and analytics provider Enverus, said Tuesday’s surge in oil prices was so far nothing more than a knee-jerk reaction and They could stabilize within a day or two if there is no physical disruption to global supplies.

It basically depends on the fear at the moment. You know, nothing has really changed in terms of the balance between supply and demand yethe said in a telephone interview.

Al Salazar added, however, that oil prices have been excessively bearish in recent months and so an event like Tuesday’s missile attacks could be enough to make investors rethink their long-term positions.

In reality, there has been no geopolitical premium built into the price of oil recently. That might shake things up a bit.

The world has radically changed

At the Calgary conference, former Finnish Prime Minister Sanna Marin said she believed the world was living in dangerous times and that Western democratic countries did not realize that the entire world order was under threat. . Today we are seeing war in Ukraine, war in Europe, we are seeing greater unrest in the Middle East, and it is not over.

I think people tend to want to believe that maybe things will be okay, that maybe we’ll get back to normal. But I tell you right now, there is no going back to normal. The world has changed, and it has changed dramatically.

The escalation of tensions between Iran and Israel led Wall Street to decline on Tuesday compared to the records set the day before. The S&P 500, Dow Jones and Nasdaq all lost ground due to market nervousness.

The Toronto Stock Exchange, which is heavily focused on energy, closed in positive territory, as rising crude prices supported the country’s oil and gas producers. The S&P/TSX Capped Energy Index gained more than 3% on Tuesday.

Repercussions on inflation?

The latest uncertainty in the Middle East also comes at a time when the world’s central banks are beginning to cut interest rates in the face of slowing inflation.

The soaring inflation of recent years has been largely fueled by sky-high energy prices, so a wider conflict in the Middle East that pushes up oil prices could again put pressure on consumers.

The reality is that oil still flows through the veins of the global economyas Peter Tertzakian points out.

Inflation is closely linked to the price of oil, so if we see prices rise above $75-80, then we will likely see high inflation return to the system.

With information from the Associated Press