The escalation of conflict in the Middle East has pushed crude oil prices to their biggest weekly rise in two years, reigniting fears of rising inflation which could, in turn, limit rate cuts. ‘interest.
Analysts point out that oil remains far from its annual highs and simply offset September declinesbut they warn that the situation could worsen if Israel attacks Iranian oil installations or if Tehran chooses to block the Strait of Hormuz, through which 20% of the world’s crude oil supply passes.
Oil prices have become the “the canary in the mine” of the Middle East conflictsince they reacted upwards to any sign indicating a worsening of the situation.
The takeoff of crude oil, which reached the 79 dollars per barrel – its highest level since late August – began on Tuesday, after the United States warned of an imminent attack by Iran on Israel.
Moderate prices on Wednesdayafter OPEC+ maintained its plan to restart production from December, and they increased again on Thursday due to the risk of Israel attacking Iranian oil facilities.
The trigger was a comment by the President of the United States, Joe Biden, who declared, before boarding the presidential helicopter, that this possibility is on the table.
Analysts agree that the factors that will now determine crude oil prices are the situation in the Middle East; THE evolution of demand, now stagnantand the position that OPEC+ adopts on production levels.
Ignacio Cantos, chief investment officer of ATL Capital, points out that, for now, this week’s increases are limited to offsetting the declines recorded in September.
“We are seeing a return (of crude oil prices) towards the average area of recent years,” he explains.
“For now, oil prices remain well below their recent peak,” recall Claudio Irigoyen and Antonio Gabriel of Bank of America in a recent report.
The price of Brent, Europe’s benchmark crude oil, exceeded $92 per barrel in April.
However, Irigoyen and Gabriel point out that “a further escalation could boost general inflation and inflation expectations.”
According to Thomas Hempell of Generali Investments, “the main signal to watch in the short term is the risk of oil supply disruption.”
“Israel’s retaliatory strikes could hit Iranian oil production centers; Yemen’s Houthis could intensify their attacks in the Red Sea, further disrupting global trade; and, in extreme cases, Iran could attempt to de facto close the Strait of Hormuz,” he explains.
In such a situation, he adds, “rising energy prices could give rise to new inflationary concerns and slow down the normalization of monetary policy”.
Hempell points out, however, that “the sluggishness of the Chinese economy and the new slowdown in global industrial production weighed on energy prices during the summer.”
To this factor would be added “the recent strategic turn” of Saudi Arabia, which seems to have abandoned its objective of raising the price of crude oil to around a hundred dollars and is now banking on an increase in its production.
According to Manuel Pinto, market analyst, it is “difficult” to predict the evolution of crude oil prices “in a scenario where, at the moment, everything depends on Israel’s response” to the Iranian attack.
However, he believes that in the long term, “oil’s downward spiral could continue up to $60 per barrel” due to stagnant consumption and the expected increase in production.
