Despite growing tensions in the Middle East, the increase in oil prices remains contained. Tehran and Washington have no interest in escalation and the supply remains abundant. The price of a barrel of Brent, which had jumped above $90 at the start of the conflict in Gaza as well as after Iran’s first attack on Israel in April, remains around $75. Explanations.
The risk of a conflagration initially pushed up oil prices. The sending of around 200 Iranian missiles on Tuesday against Israel raises fears of an open war between the two regional powers. “The market now expects a response from Israel,” says Ricardo Evangelista, analyst at ActivTrades, for whom a large-scale conflict would immediately raise prices.
Reactions on the oil market
“A response from Israel and its unconditional ally, the United States, could include damage or even destruction of Iranian oil installations,” develops Tamas Varga, analyst at PVM, based on information from the American media Axios. Iran, a member of the ten largest oil producers, has the third largest proven reserves behind Venezuela and Saudi Arabia. This uncertainty over the Iranian supply has led to an increase in the barrel of nearly five dollars since Tuesday.
Intentions of Tehran and Washington
Several investors draw a parallel between Tuesday’s attack and that of Iran against Israel on April 13, which only had a two-week impact on prices. “We continue to believe that a prolonged war (between Iran and Israel) is improbable,” said Naeem Aslam, stressing that Tehran reacted mainly for form, without wanting to aggravate the situation. “Our operation is over and we do not intend to continue,” clarified Abbas Araghchi, head of Iranian diplomacy.
Influence of Chinese demand
Oil demand has been affected for months by the economic slowdown in China, the world’s largest importer, worrying the markets. The recent stimulus measures announced by Beijing have not significantly changed the situation. “To reverse the trend, we would need an increase in consumer demand and a solution to the real estate crisis,” explains Jorge Leon, analyst at Rystad Energy. Faced with sluggish Chinese demand, oil supply remains abundant, which keeps prices low.
Increase in production by OPEC+
According to the Wall Street Journal, the Saudi oil minister recently criticized members of OPEC+ (Organization of the Petroleum Exporting Countries and their allies) for not respecting set production limits. With an implicit threat to follow their example, this could lead to a price war and send prices down to $50 a barrel. In response, Riyadh plans to increase production from December, with seven other members, to gradually restore 2.2 million barrels per day. This decision confirms the need for major oil producing countries to increase their market shares, even if it means lower prices. “If Iran’s production falls, OPEC+ could surely increase its production by 3.5 million barrels per day,” adds Jorge Leon.
Related News :