The price of crude oil has risen to a one-month high amid increased fears about the escalation in conflicts in the Middle East. Brent, the global benchmark oil, rose for the sixth session in a row on Friday. It reached 78.68 dollars, a price last seen 30th August. WTI oil, meanwhile, was up for a fourth consecutive session and reached a new one-month record of $74.75 at the time this article was written.
Despite OPEC+’s healthy reserve capacity, there are still concerns about a full-blown conflict between Iran and Israel. Traders worry that OPEC will not be able to compensate for the likely damage done to Iranian oil facilities or disruptions in the Strait of Hormuz.
Geopolitical tensions
WTI, the benchmark oil for US, grew by more than 10% between early Tuesday and late Friday. It reached a new one-month high of $73.99 on Thursday. At the time of this writing, the price was close to its one-month high due to geopolitical tensions that remain in the Middle East.
President Biden’s comments on the war are the latest catalyst for higher crude oil prices. Iran launched nearly 200 ballistic rockets at Israel on Tuesday. The attack comes after the death of Hassan Nasrallah (leader of the Hezbollah movement) and an Iranian commander who were both killed in Lebanon. The Iranian attack has not been reported to have caused any deaths, as the majority of missiles were intercepted and destroyed by US and Israeli forces.
Recent events have increased fears of an Israeli attack on Iran’s energy infrastructure, including its oil export, refinery, and production facilities. Biden responded, on Thursday, that the US was “discussing” such an attack. “I think that’s a little-anyway.” Benjamin Netanyahu, Israel’s prime minister, said that Iran made a mistake and would pay for it. Iran has also warned of a devastating response if Israel retaliates.
A strike on Iranian oil installations or tightening sanctions would result in a reduction of 3%, which is equivalent to 3.2 millions barrels of oil per day. These fears have boosted crude prices in recent sessions. However, the risk premium will be limited by OPEC+’s ability to compensate for the loss of Iranian oil supply.
In recent years the alliance of oil-producing countries has cut production to try and support global prices. It has therefore amassed millions in spare capacity. The group, in particular, has 5.86 millions bpd of spare capacity. Analysts estimate that Saudi Arabia and UAE can increase production by 3 and 1.4million bpd.
The increase in US crude oil production, in addition to OPEC’s healthy spare capacity has also helped reduce the fear premium on the global crude market. The US produces 13% of global crude oil compared with OPEC’s 25% and OPEC+’s 40%.
The global crude oil price has largely traded between $70 to 90% since late 2022 despite tensions in the Middle East and the Russia-Ukraine conflict. A war between Israel, Iran and other countries would push the price of oil to the psychological level $100 per barrel. Traders are particularly concerned about possible supply disruptions along the Strait of Hormuz.
It is the most important choke point in the world because of its large oil volume. The Strait of Hormuz is strategically located in between Iran and Oman, connecting the Persian Gulf to the Rabain sea and Gulf of Oman. According to the US Energy Information Administration, about a fifth (or more) of global oil production flows through the pipeline every day. It connects Middle East crude oil producers, such as Iran, Saudi Arabia and Iraq, with major global markets.
Crude Oil Forecast
Brent crude oil prices dropped to $68.70 per barrel on September 10 and then made a strong comeback, reaching almost $80.
The price has recovered, and is now above key resistance levels at $72 and $72.40 – the lowest points of May 2023 and last December 13.
Brent also crossed above the 50-day moving mean, and both the Relative Strength Index(RSI) as well as the MACD indicators are pointing upwards.
The price has also moved past the resistance level of $75.87. This was its highest swing since September 24th.
Brent is therefore likely to continue rising while investors await Israel’s reaction to the recent Iranian bombing campaign. If the response isn’t very strong, it may bounce back to $80 before continuing its downward trend.
The post Crude Oil Price Analysis: Will the Brent and WTI Gains Hold? This post appeared first on The ICD
This site is for entertainment only. Click here to read more
