Oil Prices Surge as Geopolitical Tensions Escalate
The global oil market is bracing for a potential shock as tensions between Israel and Iran continue to escalate. Following Iran’s ballistic missile strike on Tuesday, President Joe Biden hinted at a possible Israeli strike on Iran’s crude facilities, sending oil prices soaring. According to Daan Struyven, head oil analyst at Goldman Sachs, a sustained disruption to Iranian production could drive prices up by $10 to $20 per barrel.
Despite the recent surge, oil prices have been on a rollercoaster ride in recent months. Just last month, prices hit a three-year low due to weak demand in China and OPEC+’s plans to increase production. However, the escalating conflict in the Middle East has injected a new level of uncertainty into the market.
Struyven notes that the oil market had been largely complacent about geopolitical risks until Iran’s missile strike. “The risk to the oil price outlook is definitely significant,” he warned. With Brent prices currently hovering around $77 per barrel, Struyven believes that the market is still undervaluing the risks.
One key factor that could mitigate the impact of a supply disruption is OPEC’s spare capacity. According to Struyven, there are around 6 million barrels per day of spare capacity that could come online to offset tightness in the market. However, the analyst also notes that the market has been slow to respond to geopolitical tensions in the past, which could lead to a more significant price shock if a disruption occurs.
As the situation continues to unfold, investors and analysts will be closely watching the oil market for signs of further volatility. With prices already up nearly 9% for the week, it’s clear that the stakes are high.
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