SEB's chief commodity analyst, Bjarne Schieldrop, indicated that if the Middle East tensions escalate, causing a significant drop in Iranian oil output, oil prices could soar past $200 per barrel. Iran currently exports over 2 million barrels of oil daily. Any conflict that disrupts Iran's oil infrastructure would drastically cut OPEC+'s spare capacity, thereby pushing prices higher and increasing market uncertainty.
The potential closing of the Strait of Hormuz could further elevate oil's risk premium. Brent crude hitting $200 would represent a 160% increase from current levels, with Brent crude recently trading around $77.5 per barrel, marking nearly a 10% rise from earlier lows. The recent escalation involved significant missile strikes by Iran on Israel, in response to Israeli ground interventions in Lebanon. Market participants are closely monitoring for potential retaliations from Israel.
Despite recent gains, Brent crude remains about 16% below its peak of $91 per barrel earlier this year. Other analysts agree with Schieldrop that geopolitical tensions won't have major impacts unless there's tangible damage to oil infrastructure. Rapidan founder Bob McNally stated that unless there are actual production halts, like those recently observed in Libya, the market impact remains limited. He noted expectations for measured responses from Israel, avoiding substantial disruptions in energy production and flow.
Still, some investors are hedging against potential disruptions, with Brent crude call options at a strike price of $100 seeing significant trading volume, indicating bets on oil prices reaching triple digits. Besides geopolitical tensions, other factors are at play. OPEC+ is set to decide in December on whether to ease production cuts and inject more supply into the market. Initially, output restrictions were meant to support oil prices but at the cost of market share. Some members have reportedly flouted production quotas, angering leading member Saudi Arabia. Reports suggested Saudi warnings that oil prices could plummet to $50 per barrel if output limits continue to be ignored, though OPEC later labeled such reports as inaccurate and misleading.
