Oil Prices Fall as Middle East War Risk Fades

Oil Prices Fall as Middle East War Risk Fades

Stephen, walk us through what we’ve been seeing in these oil markets and how markets investors have started to recalibrate their views on oil. Yeah, I mean, a few weeks ago, I think we had hit a peak for oil after Iran attacked Israel directly from. And then Israel, of course, had the, you know, counter offensive there. And you saw prices kind of jump up above $90 for Brent. But since then, there’s been a pretty steady decline, you know, down roughly 10%. And that’s largely driven, I think, by by that war risk kind of receding. The US has stood pretty firm saying that, you know, asking Israel and urging them not to further retaliate against Iran, which would, you know, potentially risk that kind of spiraling into a proxy war between Iran and the United States and effect at a worst case scenario, oil production in the region as well as flows. That’s through the Strait of Hormuz, which makes up about 30% of oil trade goes through that key conduit. Now, because that risk has receded, you’ve seen prices really kind of deflate. So that’s that’s a11 thing. That’s a war risk. The other thing, of course, as well is the fundamentals. We’ve had some pretty bearish data out of the United States, larger than normal gains in oil product inventories in the US. At the same time, there’s indications that that gasoline demand and demand for products aren’t terribly strong right now in the United States leading up to the peak driving season. When summer starts, everyone goes on a trip. So there is some fear that maybe there won’t be a lot of demand there in the United States. And as well, Chinese demand hasn’t been as resilient while it was growing and it hasn’t been resilient as as some had been expecting. That’s sort of a more complicated picture because their factory data has been just recently released and that had showed a positive economic increase to two months in a row of positive factory data out of China. But that all being said, the picture is showing that maybe we really aren’t in a march to $100 brand. Maybe we’re going to be playing in the $80 range for a little while. Okay. The $80 range rather than $100 that some analysts, of course, had forecast for this year. Stephen, what are the other catalysts you’re looking for? There’s a summer season, as you mentioned, in the US, and where does Opec+ stand at this point? Yeah. I mean, certainly there’s a big question as where is us gasoline demand going to be so that, you know, I don’t have the crystal ball. It’s hard to say how that will pan out, but I think once that data starts to come in, you could potentially see prices rise or fall depending on if it’s more than what analysts were expecting. Now, when you talk about OPEC, plus, that is the next big question. They’ve held production cuts steady through the second quarter. What are they going to do for the third quarter? You know, if oil prices are kind of sliding, if if we aren’t so worried about a an oil deficit in the market, then maybe OPEC plus keeps these cuts going into the third quarter. There’s also a matter of compliance. Is Iraq going to hit their production cuts? They’ve struggled to do so in the past, but they have, to a degree, committed to reducing their production as well. Russian oil output has been a bit more resilient than I think some in the market were expecting. Is that going to be reduced either because of the war in Ukraine? You know, there have been drone attacks on there. So in the refining facilities as well, will they reduce it to hit opec+ targets? So I think all that together, to summarize it is a question, will these cuts continue through the third quarter? If it does, then you could see prices kind of remain kind of higher in this in this $80 range. If they don’t continue them, then we could see prices kind of fall in the market, be flooded with more oil.

Oil headed for its biggest weekly decline since February on signs of easing geopolitical risks in the Middle East and weakening across fuel markets. Bloomberg’s Stephen Stapczynski reports.
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Oil Prices Fall as Middle East War Risk Fades

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