Disruptions in Middle East supplies to the top of an already stiff crude market could push oil prices upwards violently, according to Rystad Energy.
Two oil tankers from Saudi Arabia would be attacked off the coast of the United Arab Emirates (UAE) this weekend, abruptly sending crude oil futures on Monday morning.
Commenting on the incident, Bjørnar Tonhaugen, head of Rystad Energy's Oil Market Research, says:
"In the short term, the perceived risk of supply disruptions from the area will only increase the premium on short-term oil contracts compared to the deferred contracts on the futures curve, which are already traded at a high premium."
The lack of timely supplies is caused by the decline in production by Iran and Venezuela, along with ongoing OPEC cuts, interruptions in Russia due to contamination of the Urals, maintenance in Kazakhstan and planned maintenance in the Sea of the North during the summer months.
"The oil market is reacting today not because the physical market has suddenly lost more oil supplies, but because of the risks that the market may lose more oil in the coming weeks and months, given the greater risk of supply disruptions from the critical region of Persian Gulf: Increasing tensions even higher, news flows suggest that the latest incident could be linked to the conflict between Iran and the United States, which puts the Strait of Hormuz at stake, "Tonhaugen said. Related: The run for an oil spill solution
The accident occurred near the Strait of Hormuz, the most important oil route in the world. About 40% of the crude oil traded in the world is transported through the waterway between Iran to the north and the United Arab Emirates / Oman to the south. About 90% of Saudi Arabia's crude oil exports and 75% of Iraqi exports pass through this shipping lane, plus all oil exports from Iran, Kuwait, Qatar and Bahrain.
The United States announced last month that buyers of Iranian oil must stop buying by May 1, 2019 or face sanctions. The end of the so-called Iranian sanction relief program prompted Iran to renew its threat to close the Strait of Hormuz.
"Iran has repeatedly threatened to block the strait as a weapon, but because of the importance of the waterway for the global economy and the price of oil, the strait it is also protected by the US Navy's Fifth Fleet and other allies, "Tonhaugen noted. "Needless to say, if the strait were to be blocked or interrupted, even for a short period of time, oil prices would react violently upward. There are limited bypass options to export crude oil, although Saudi Arabia and the United Arab Emirates have a limited capacity for pipelines to move some crude oil exports to the Red Sea or the Gulf of Oman. "
However, any interruption of oil flow through the Strait of Hormuz would have unknown consequences for stability in the region. The risk of triggering an increasing conflict implies that the threats that are expressed lately are probably rhetorical, with less likelihood that the "oil weapon" will actually be set in motion.
By Rystad Energy
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