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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Established in 2006 as a Community of Reality

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    4 Scenarios for Oil Prices as War Drums Beat in the Region

    Rocky
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    • Post n°1

    4 Scenarios for Oil Prices as War Drums Beat in the Region Empty 4 Scenarios for Oil Prices as War Drums Beat in the Region

    Post by Rocky Today at 4:41 am

    4 Scenarios for Oil Prices as War Drums Beat in the Region

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    Baghdad Today - Follow-up
    Global institutions have drawn up 4 scenarios for oil prices if the battles between Israel and Iran escalate. 
    The oil market is witnessing a state of tension amid fears of a large-scale war between Israel and Iran this week. 
    Fears of a full-scale war and an actual disruption of oil supplies from the Middle East have increased after the Israeli threat to strike Iranian energy facilities, which Washington apparently did not object to, and US President Joe Biden said he was studying the matter.
    This pushed oil prices up, albeit at rates that do not match the risks of the war expanding. Brent crude rose at the end of trading on Friday to $78 in December contracts. 
    Crude oil futures contracts typically lead spot prices, while West Texas Intermediate crude for the same contract rose to $48.74 a barrel.
    Traders and brokerage firms are awaiting the development of mutual threats between Tel Aviv and Tehran regarding striking oil installations. Tehran threatened yesterday, Saturday, that it would respond by striking Israeli installations, the most important of which is the Leviathan gas field.
    Oil market concerns are focused on the possibility of Iranian oil being halted and the strategic Strait of Hormuz being closed, through which 17.5 million barrels of oil pass daily. Concerns also revolve around the possibility of the Houthis intensifying their attacks on oil facilities in the region, especially since they are close to oil facilities in the oil-rich Gulf states.
    As the world awaits Israel's response to Iran's missile attack on Israel earlier this week, reports indicate that Israel may target some Iranian energy and oil infrastructure.
    Unlike in similar geopolitical flare-ups in the recent past, oil prices have remained relatively low throughout the year since the October 2023 Palestinian militant attack on Israel, which sparked the current crisis in the Middle East, due to the growth crisis in the Chinese economy, weak economic growth in the eurozone, and because OPEC, which is cutting oil production to “stabilize” the market, has an estimated 5 million barrels per day of spare production capacity, according to a report in the Oil Price Bulletin on Sunday.
    But analysts believe that this excess energy may become useless in the event of a comprehensive war between Israel and Iran, joined by the Houthi group in Yemen, which is close to Saudi Arabia and the Emirates, and Shiite groups in Iraq, Lebanon and Syria, or even the closure of the Strait of Hormuz.
    Amid this volatile landscape threatening global energy markets, a new study from Bloomberg Intelligence (BI) and Bloomberg Economics (BE) examines Middle East energy scenarios in detail in four broad scenarios and their potential impact on oil prices, the global economy and inflation, ranging from a sustained ceasefire to a limited conflict, a multi-front proxy war and a larger war involving direct conflict between Israel and Iran.
    “Our baseline expectation is that the war will remain largely contained, as it has been since last October, with limited impact on the global economy,” said Ziad Daoud, chief emerging markets economist at Bloomberg Economics and co-author of the report. But he says that could change.
    A risk scenario involving a prolonged conflict could lead to a global recession that shaves about $1 trillion off global GDP, with oil prices rising to $150 a barrel and sentiment declining, leading to global growth falling to 1.7%.
    Beyond the financial crisis and the pandemic, this would be the worst growth for the global economy since 1982, when the Federal Reserve, the US central bank, raised interest rates to contain inflation resulting from the oil shock of the 1970s.
    “The global economy is still recovering from the inflationary cycle exacerbated by Russia’s invasion of Ukraine in 2022, and another conflict in a region critical to energy production, such as the Middle East, could push inflation well above 7% this year,” the study says. “The Fed’s 2% inflation target will thus be out of reach, and more expensive gasoline will pose a hurdle to Vice President Joe Biden’s reelection campaign.”
    Bloomberg believes that a major disruption to production in the region, which produces nearly 20% of the world’s oil, or to the passage of oil shipments in the event of the closure of the Strait of Hormuz, could shift the “OPEC+” policy to maximum production, according to “Bloomberg Intelligence.” In this case, the spare production capacity in Saudi Arabia, the Emirates and Kuwait would become “useless” if the strait was closed.
    “OPEC+ members with spare capacity, such as Russia and Kazakhstan, will benefit as they will have room to ramp up production at higher prices to compensate for lower oil output,” said Salih Yilmaz, senior oil analyst at Bloomberg Intelligence and co-author of the report. The U.S. will likely have to tap its strategic oil reserve to replace some of the barrels lost to the Middle East war and cool prices.
    The U.S. Strategic Petroleum Reserve had 346.8 million barrels of oil stored, according to the U.S. Energy Information Administration. The SPR is the world’s largest source of emergency crude oil supplies and is stored in underground salt caverns in Louisiana and Texas. The SPR is a critical energy security asset that has protected the economy during times of crisis and war.
    In addition, the report says, a direct war in the Middle East could push LNG prices up by at least 35% if conflict in the Gulf region disrupts LNG flows, especially since Qatar sends more than 10 billion cubic feet of LNG through the Strait of Hormuz daily.
    War shakes markets, worries investors
    Other conflict scenarios include a proxy war that could push oil prices to $100 a barrel. By proxy war, the study refers to a clash between Iran and Israel through Tehran’s proxies in Lebanon, Syria and Yemen. While less destructive than direct war, it could cost the global economy up to $300 billion, with prices rising by $10 a barrel and investor confidence waning. This could cause global growth to contract by 0.3% in 2024, which would be the weakest growth in three decades.
    The third scenario is a confined war. According to the study, the confined war scenario, characterized by limited Israeli airstrikes on Gaza and Hamas rocket attacks, could have a weak impact on the global economy.
    Oil prices shrugged off Iran’s strikes on Israel on April 13, suggesting markets see an extension of the limited war as the most likely scenario. The study sees risks to oil tilted to the upside with healthy demand and OPEC+’s tight grip on supply against a strong fundamental backdrop.
    In the fourth and final scenario, a ceasefire, the impact on oil prices is likely to remain limited, as the current geopolitical risk premium appears to persist. In a recent Bloomberg Intelligence survey, 92% of 143 respondents said there is a geopolitical risk premium of less than $5 per barrel attached to prices in the market.
    The Red Sea attacks have had a limited impact on oil prices so far, and OPEC has a large amount of spare capacity (around 6.8 million barrels a day), according to Bloomberg, but many energy firms put the spare capacity much lower at around 3.5 million barrels a day. Moreover, OPEC+ production policy is unlikely to change in a ceasefire scenario if the impact on prices remains limited.
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