Analysts foresee a surge in oil prices to unprecedented levels if the Hamas-Israel conflict escalates to involve Iran, despite oil prices experiencing a slight dip during Monday's trading session, approaching an eight-month low due to fears of a US recession. Despite heightened tensions between Iran and Israel, oil futures continued to decline in a volatile Monday session, as concerns over a US recession overshadowed supply worries arising from escalating Middle East tensions, the world's largest oil-producing region.
Brent crude futures fell by 78 cents, or 1.0 percent, to $76.03 a barrel by 0652 GMT, while US West Texas Intermediate crude futures stood at $72.65 a barrel, down 87 cents, or 1.2 percent. Both Brent and WTI plummeted over 3.0 percent on Friday, marking their fourth consecutive week of losses, the longest losing streak since November. However, traders have been aggressively purchasing call options, speculating that oil prices could reach $110-$130 per barrel by November. Some traders anticipate this week that oil prices might hit $110-$130 in November as Middle East risks intensify due to rising tensions between Israel and Iran.
ING's commodities strategists, Warren Patterson and Ewa Manthey, noted, "The market will likely need to incorporate a higher geopolitical risk premium until these tensions ease." Market experts believe that since Iran holds a significant bargaining chip as it controls the Strait of Hormuz, a potential blockade could lead to a sudden loss of 20 million barrels per day, causing oil prices to spike not only to record highs but also to levels of $200-300 per barrel, according to some energy analysts. They added that if Iran enters an open conflict, it could trigger substantial market movements, given its daily oil production of approximately 3.2 million barrels.
Iran officially exports about 1.5 million barrels per day, despite sanctions from the US and Europe, with most of this oil going to countries not aligned with the United States, notably China. Although a significant escalation in the form of an open war is not widely anticipated, many doubt that peace can be achieved in the Middle East currently. According to Iranian media, potential peace talks could be postponed for several months. Meanwhile, the White House appears to be maintaining its stance on continuing talks aimed at achieving a ceasefire between Israel and Hamas.
Market experts suggest that in the long term, production and demand data will be crucial in the oil market. If Opec+ persists in increasing production and China's data does not indicate recovery, oil prices could stabilize around $70-80 per barrel. However, in the coming weeks, analysts anticipate heightened volatility and prices to hover around $80 per barrel. Last week, despite rising geopolitical tensions in the Middle East, crude futures declined, keeping Brent crude below $80 a barrel.
Opec maintained steady oil production in July, averaging 26.99 million barrels per day, a slight decrease of 60,000 barrels per day from June, according to a Bloomberg survey. Venezuela and Iran contributed most to this decrease, with reduced demand from China. Opec and its allies held a monitoring meeting last week, aiming to gradually unwind production cuts starting in Q4, though any adjustments to planned supply increases will depend on market conditions. Despite escalating geopolitical tensions in the Middle East, crude futures have declined, posing challenges for Opec+ nations, particularly Saudi Arabia, which is facing a four-quarter growth slump and has had to cut investments in key economic projects. In July, Saudi Arabia kept its output at 9 million barrels per day, closely aligning with its Opec+ quota, while Algeria and Kuwait also met their targets.
