Geopolitical Tensions Propel Oil Price: This article discusses how reports of U.S. military strikes in Syria have led to concerns about the Israel-Hamas conflict potentially impacting oil supply in the Middle East. Brent crude futures for December rose by $1.32, reaching $89.25 a barrel, while the U.S. West Texas Intermediate contract for December climbed by $1.29, reaching $84.50 a barrel.
The strikes in Syria were a response to recent attacks on U.S. troops in Iraq and Syria, which have increased since the start of the Israel-Hamas conflict on Oct. 7. While the strike didn’t directly affect oil supply, it raised fears that the conflict could disrupt supply from major crude producer Iran, potentially impacting shipments from Saudi Arabia and other Gulf producers.
Both Brent and WTI are on track to post their first weekly drop in three weeks, as the geopolitical premium based on these fears has ebbed with no disruption of oil supply outside the immediate conflict region.
“As a trader, I’m going to have to say we are somewhat out of our league here – trying to ascribe a value to geopolitics when no meaningful supply has been disrupted outside of the Levant,” said Kelvin Yew, a senior oil trader at Ocean Leonid Investments. Israeli forces carried out their biggest Gaza ground attack in their 20-day-old war with Hamas overnight, which has raised concerns in the Arab world.
Read Also: Oil Prices Swing: Middle East Tensions and Economic Worries
Prime Minister Benjamin Netanyahu indicated that Israeli troops were still preparing for a full ground invasion, while the United States and other countries urged Israel to delay, fearing it could ignite hostilities on other Middle East fronts.
RBC Capital analyst Helima Croft noted, “… It remains incredibly difficult even for the most knowledgeable regional watchers to make high conviction calls about the trajectory of the current crisis as the redlines that could bring more players onto the battlefield remain largely indiscernible.”
Goldman Sachs analysts have maintained their first quarter 2024 Brent crude price forecast at $95 a barrel, but they added that lower Iranian exports could cause baseline prices to rise by 5%.
Prices could jump 20% in the less likely scenario of an interruption of trade through the Strait of Hormuz, where 17% of global oil production transits, as stated in a note.
Voluntary supply cuts by Saudi Arabia and Russia, in effect until the end of the year, are tightening global markets and supporting oil prices, according to analysts.
Our Reader’s Queries
How does geopolitics affect oil prices?
Geopolitical conflicts can have a significant impact on trade flows, fuel prices, and transportation stability. The Geopolitical Risk (GPR) index, as depicted in Fig. 1, tracks events that affect oil prices and ultimately influence the Baltic Dry Index (BDI). These events can lead to the imposition of tariffs, changes in trade volume and direction, and sudden spikes in fuel prices. It is crucial to monitor geopolitical risks to anticipate potential disruptions in the shipping industry.
What is going on with oil prices today?
As of 9 a.m. ET today, the WTI futures are trading at $71.25 per barrel, which marks a 2.92% decrease in the past 24 hours.
Why are oil prices so high?
The demand for fuel is on the rise as travel rebounds from the COVID-19 pandemic. A strong U.S. economy is driving up the demand and price of oil, while China and Europe’s weak growth is having the opposite effect. This poses a big question for the industry.
What is the projected price of WTI oil?
According to Deloitte’s forecast, the average WTI price is expected to stay low until 2026, with a slight rebound in the years leading up to 2030. However, the prices are not expected to exceed $80 per barrel.