This was an interesting week, for all the tensions in the ME, crude oil prices closed 3.30% lower. Crude Oil touched a weekly high of $ 90.80 and closed the week at $ 87.15. It appears markets base case is of no escalation to the State Conflict and Iran continues to fight the proxy war across the Middle East through Hezbollah, Hamas, Shi'ite and the Houthis.
Iran's oil exports are surging and Iran would not prefer a situation where the progress is impeded. EU and US are preparing new sanctions on Iran but with Iran's proclivity to circumvent sanctions, it is to be seen if any meaningful progress can be made in bringing Iranian supply lower.
Disruption to crude oil supply either through destruction of Oil production facilities in Iran or supply route through the Strait of Hormuz or maximum pressure sanctions are events that could catalyze a spike higher in crude oil prices. A huge deterrent also comes from the U.S as President Biden tries to contain the situation ahead of the elections and would not want to risk higher crude oil prices.
Reuters makes an interesting point that the recent turmoil is happening in the backdrop of Idle production capacity of more than 4 mn bpd with OPEC+ and comfortable inventories which make a sharp spike higher a less probability event.
Brent crude prices continue in backwardation with the June / Dec spread is at $ 4.04 ($ 87.11 / $ 83.07).
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