Oil surges then falls back on Middle East tensions

The petrolium remains close to the highs of the last five and a half months, albeit with some reductions compared to the peaks of the weekend, when crude oil had soared as a result of Iran's drone attack on Israel, following the attack on the embassy in Damascus . The geopolitical risk brought crude oil prices up, which reached highs of 92 dollars a barrelto then fall back on the signs of de-escalation and after the G7 strongly condemned any attempt to fuel the conflict.

Crude oil prices

The North Sea Brent future, for June delivery, reached a high of $92.12 a barrel over the weekend, before repositioning itself at $89.80. Similarly, the May contract on American Light Crude (WTI grade) reached a peak of $87.54 per barrel, before falling back to $84.97.

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Iran is the third largest OPEC producer

Iran is OPEC's third largest producer: Out of overall production of 26.6 million barrels per day as of March 2024, Iran contributed nearly 3.2 million barrels, behind Iraq which produces 4.2 million e Saudi Arabia which contributes just over 9 million barrels per day.

Since last year, OPEC, with the addition of some external members such as Russia, has formed the so-called cartel OPEC Plus, has adopted a rigid supply planning and set production quotas in order to limit excessive fluctuations in the price of crude oil. This agreement, called the Declaration of Cooperation, establishes the production levels of the countries that have joined, internal and external to OPEC, periodically reviewing the production quota of each member.

The importance of the geopolitical factor

Certainly, the geopolitical factor weighs heavily on the trend of crude oil, as tensions in the Middle East risk having impacts on the cartel's oil supply. If Iran also had production problems, these would add to the repercussions of the Houthi attacks on oil tankers in the Red Sea and to damage toand Russian oil infrastructure, with a disastrous effect on the oil market. And all this while OPEC Plus continues the plan of supply cuts decided a year ago.

On the other hand, the USA they have ample reserves strategic that can be used in the event of a supply-side shock, while the cartel itself Opec has at least 5 million residual capacity unused, largely in the hands of Riyadh.

The growth of demand

There growth in demanda is estimated this year at 2.2 million barrels, in response to the recovery of the economy, indicated at 2.8-2.9%. The growth of United Statesin fact, could now come conditioned by the Fed and by its policy of “higher rates for longer”, while Europe's sluggish growth could be revived in the second half of the year by a more accommodating ECB and a rate cut expected in June. As for the Chinathe large Asian economy now seems established on the road to recovery economical.

The analysts' view

“If prices were to rise significantly in the wake of supply losses, one could imagine the producer group looking to use some of the unused capacity on the market. OPEC will not want to see prices rise too much given the risk of demand shocks,” he points out ENGwhich confirms a price prediction of Brent at 87 dollars.

For Saxo Iran's involvement is likely “pushes crude oil prices even higher”but the recent rally could deflate “if further escalation is avoided.”

The analysts of Quotecurrent prices between 85 and 90 dollars are the result of prolonged tensions in the Middle East, which a de-escalation could bring it back to 70 dollarswhile in the event of an increase in tensions, prices could easily reach 100 dollars a barrel.