Bad and terrible: scenarios for the development of the global oil market are named
How the Middle East conflict will affect the prices of “black gold”
Against the backdrop of recent events in the Middle East, oil began to grow: Brent futures on the London ICE exchange soared by 5%, to $75.89 per barrel. At the same time, the OPEC+ Ministerial Monitoring Committee held an online meeting to assess the situation on the market. Judging by the incoming information, producers do not intend to make sudden movements: they will not soon move to increase production in conditions where commodity prices are too volatile.
The hint made the day before in an article in the Financial Times about Saudi Arabia's readiness for actual oil dumping has not been confirmed, although it has not been officially refuted. For now, one thing can be said: Riyadh clearly stands out in its activity compared to other manufacturers. During an online conference, Saudi Energy Minister Prince Abdulaziz bin Salman warned of the risk of oil prices falling to $50 per barrel. He blamed this on Iraq and Kazakhstan, which, according to him, “neglect their obligations to OPEC+” in terms of production cuts. According to The Wall Street Journal, the signal was perceived as a veiled threat from Riyadh to start a price war by sharply increasing production.
Let us remind you: the OPEC+ ministerial monitoring committee does not make any decisions, but it makes recommendations on whether and how to adjust the parameters of the agreement. As Russian Deputy Prime Minister Alexander Novak said in an interview on the eve of the summit, OPEC+ participants are trying to act in solidarity: today their efforts are aimed at preventing a supply shortage over the horizon of five years. For this purpose, the alliance is temporarily ceding its market share, reducing production volumes.
According to Novak, in order for investments to be made in the energy industry in exporting countries, “balanced prices are needed - not too low, not too high. One that won’t derail buyer demand, but will still help suppliers recoup their investment.” This balance occurs at approximately $80 per barrel. By the way, Russia already now, starting in October, will have to start cutting production again. For countries that in the first half of 2024 allowed production levels to exceed those reached within the framework of OPEC+ agreements (these are Iraq, Kazakhstan and the Russian Federation), a compensation schedule for under-reduced volumes is in effect. In October, the volume of compensation will be 10 thousand barrels per day, in November - 30 thousand b/d. After which the country will have to repay its “debts” to reduce production during March–September 2025.
“I think that the OPEC+ monitoring committee will keep its recommendation at the end of the meeting to leave the parameters of the current production quotas in place,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation. – And when to start increasing production and in what volumes – the participants will not rush to answer this question yet, taking a wait-and-see approach. They understand perfectly well: in conditions of geopolitical instability, escalating conflicts, when the price of oil is jumping, it is better to leave everything as it is and watch what is happening.”
As for the consequences of the Iranian-Israeli confrontation for the global market, they can be twofold, argues Yushkov. On the one hand, the rather soft rhetoric of the Jewish state is striking, which refrained from retaliating against the enemy, reporting the absence of casualties and serious damage. This suggests that a full-scale war in the Middle East can be avoided. On the other hand, if Israel decides to attack Iran's oil infrastructure, this will most likely lead to a reduction in exports. As MK’s interlocutor reminds, recently the Islamic Republic has been actively increasing both production (today 3-4 million bpd) and supplies abroad (1.6-1.7 million bpd). If at least half of export volumes leave the global market, a certain shortage will arise and prices will go up quite quickly.
“There is a more radical scenario: if Iran’s political leadership feels an existential threat to its very existence, it may take the extreme step of blocking the exit from the Strait of Hormuz,” Yushkov notes. - 20% of world oil trade and 20% of LNG trade go through it. There is oil from Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, and liquefied gas, mainly from Qatar. In this case, quotes will rush up, instantly exceeding $100 per barrel.”
But this, according to Yushkov, is absolutely not needed by Washington and American democrats, who will make any efforts. to avoid escalation of the conflict and rise in oil prices. High world prices are directly correlated with the cost of gasoline in the United States. And if fuel becomes more expensive at gas stations, voters traditionally blame the current administration for this.
