The price of oil is experiencing its most bullish day since last November, after the United States alerted Israel that Iran is preparing an imminent attack with ballistic missiles towards its territory. The barrel Brent The European currency went from falling 2% to rebounding more than 3.8%, recovering $74.5 on the day and trimming the year’s losses to 3.6%.
Increasing geopolitical tensions in the Middle East are affecting markets and making investors forget, at least momentarily, the underlying fundamental situation that the crude oil market is going through, with an oversupply that could be eclipsed if the conflict in the region is taking on new dimensions. The fact that a third of global oil production is concentrated in the region makes the situation particularly delicate for crude oil prices, which react quickly to the latest developments.
The United States reportedly warned Israel that it had information confirming that Iran was preparing an attack on its territory with ballistic missiles, an attack that would take the conflict to a new level and could result in a direct confrontation between Iran and Israel. , with the possible intervention of the United States. The latter, in fact, has already warned Israel that it would receive the support it needs, and warned Iran of the consequences if it carried out the attack.
“This news has caused the geopolitical risk premium to jump. The United States will defend Israel with all necessary means if Iran attacks Israel,” explains Tamas Varga, analyst at PVM, a broker in oil derivative financial instruments. “In the event of an escalation, Iran’s allies, such as the Houthi rebels or Iraqi paramilitaries, could launch attacks against Middle Eastern oil producers, such as Saudi Arabia, similar to what happened in September 2019, which forced a 50% reduction in oil exports. Saudi crude oil production,” Varga explains. “There is now a real fear that oil supplies will be affected, and trading markets are nervous and volatility is expected until the situation becomes clearer.”Varga said.
Only geopolitical conflict can trigger crude oil
As the economy slows, and despite the monetary stimulus measures announced last week by China, oil is experiencing a situation of excess production that appears to have a difficult solution. It seems that the only thing that could now balance the balance between global consumption and crude oil supply would be if a geopolitical conflict occurred and changed the fundamental situation of this market.
The latest news from the Middle East seems to point in this direction, but we must not forget that there are other sources of conflict that also affect the crude oil market. In Libya, for example, production remains well below the country’s capacity due to political conflict over the central bank, which has reduced supplies to the African country by almost 40%.
According to the latest data collected by a survey launched by Bloomberg According to analysts, the Organization of the Petroleum Exporting Countries, a cartel which includes Libya, among others, reduced its production by 480,000 barrels per day last September, to 26.61 million barrels per day. The conflict in Libya caused crude oil prices to rise momentarily in mid-September, but they then corrected again, until rebounding on Tuesday due to news from the Middle East.
