Oil prices are on a relentless upward trajectory, buoyed by mounting tensions in the Middle East that propelled Brent crude to soar past the $90-a-barrel threshold in recent trading.
Amidst the geopolitical powder keg, concerns over potential retaliation and further conflict intensify following Israel’s strike on an Iranian diplomatic compound in Syria. The specter of a wider regional conflict looms large, with Israel heightening its preparedness for potential consequences.
The surge in crude prices, now up by 18% this year, is driven not only by Middle East tensions but also by geopolitical strife in Ukraine, coupled with supply constraints orchestrated by OPEC+ and robust global demand. While the Israel-Hamas conflict has triggered Houthi attacks on shipping in the Red Sea, the region’s oil supply remains precariously balanced, accounting for a significant portion of global output.
Despite ongoing efforts, cease-fire negotiations between Israel and Hamas remain at an impasse, further complicating the volatile situation. Trust deficits in mediation efforts, particularly with Qatar, underscore the complexities of the regional dynamics.
Vandana Hari, founder of Vanda Insights in Singapore, highlights the palpable fear premium embedded in crude prices, reflective of the escalating tensions in the Middle East.
OPEC+ recently reaffirmed its commitment to supply cuts for the first half of the year, affirming a bullish sentiment in the market and supporting the case for sustained price hikes. With major players like Saudi Arabia advocating for policy continuity, the current output curbs are set to remain in force, keeping global markets tight.
Market sentiment is increasingly bullish, with projections of Brent hitting $100 a barrel this year, fueled by factors such as Russia’s production cuts and heightened investor optimism. Amidst strengthening timespreads and rising call options, indications point towards further oil price escalations, as money managers increase their net-long positions.
