An already spooked oil market received further jitters on Friday after U.S. President Joe Biden suggested Israel possibly targeting Iran’s energy infrastructure was under discussion.
Have risen by over 5% in overnight U.S. trading, crude oil futures continued their upward trajectory in Asian and European trading. At 07:14am EDT on Friday, the Brent front-month contract was up another 1.52% or $2.07 to $78.63 per barrel, while the West Texas Intermediate was trading at $74.92, up 1.57% or $1.48 intraday.
Market speculation was already rife on how Israel may respond following a ballistic missile attack by Iran on it late on Tuesday. Tehran said it had attacked Israel in response to its “aggressive acts,” including the killing of Hezbollah leader Hassan Nasrallah in Lebanon.
In response, Israeli Prime Minister Benjamin Netanyahu said Iran had “made a big mistake and will pay for it”. Major Iranian oil facilities could possibly be in Israel’s sights. But there has been little indication on what retaliatory route Prime Minister Benjamin Netanyahu would take.
However, when asked by journalists on Thursday if the U.S. would support Israel striking Iran’s oil facilities, President Biden said: “We’re discussing that.” The President’s aides have since described the remarks as “off the cuff” but the cumulative effect of rising tension in the Middle East and the comments have seen oil prices jump by over 10% since Monday, using Brent crude as a benchmark.
In a sentiment-driven crude market, there is now a heightened risk premium level, although whether it lasts or not depends on how Israel chooses to respond.
Plenty Of Oil In The Pipeline
Nonetheless, Brent prices are still comfortably below $85 levels seen in October 2023 and hit lows last seen in 2021 less than four weeks ago. That’s because there are legitimate concerns in the market about a supply surplus early in 2025 and an uncertain demand climate.
Iran currently exports around 1.7 million barrels per day, with bulk of these heading to China. However, there is plenty of oil there to meet the shortfall if all of this gets taken out.
According to the International Energy Agency’s latest market assessment, the world’s oil supply rose by 80,000 bpd to 103.5 million bpd in August, with outages caused by a political dispute in Libya combined with maintenance in Norway and Kazakhstan offset by higher flows from the U.S., Guyana, Brazil and elsewhere.
The U.S. is currently the world’s largest crude oil producer. The agency sees annual gains strengthen from 660,000 bpd this year to 2.1 million bd in 2025, primarily thanks to non-OPEC supply but OPEC too has plenty of spare capacity if needed.
Meanwhile, as Chinese crude import levels continue to disappoint and global economic uncertainties persist, even the Organization of Petroleum Exporting Countries — considered to be among the more bullish demand forecasters out in the market — now expects lower demand growth both in 2024 and 2025.
As does the IEA, though both continue to offer vastly divergent oil demand growth forecasts for 2024 of less than 1 million bpd in the agency’s case, and just over 2 million bpd in OPEC’s case. This is likely to keep a lid on prices.
However, a prolonged conflict in the Middle East that does impact energy infrastructure and upends oil shipments carries the potential for prices spiking to $100 per barrel over the near-term.