Oil prices remained elevated on Thursday after Brent crude moved above $100 a barrel, as traders assessed the risk of a deeper supply disruption following the biggest attacks on shipping by Iran and the United States since their six-month-old conflict began.
Iran said on Wednesday that it had attacked 10 ships near the Strait of Hormuz after the United States sank five Iranian oil tankers. The Islamic Revolutionary Guard Corps also warned that it would intensify its response if further attacks take place.
Crude oil price on September 10
Brent crude futures were up 0.2% at $101.80 a barrel, while U.S. West Texas Intermediate crude gained 0.5% to $96.55 a barrel. Front-month Brent crude futures settled $3.29, or 3.4%, higher at $101.21 a barrel in the previous session, after rising to a high of $101.58. U.S. West Texas Intermediate crude gained $3.02, or 3.25%, to settle at $96.05 a barrel. Both benchmarks ended at their highest levels since May 22.
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Traffic through the Strait of Hormuz remains far below pre-war levels. Before the conflict, the key waterway carried roughly a fifth of the world's oil and gas supplies.
The U.S. The Energy Information Administration raised its oil price forecasts for this year and next on Wednesday, citing falling global stockpiles as Middle Eastern supply remains disrupted.
Where are prices headed?
Tim Waterer, chief market analyst at KCM Trade, told Reuters that the latest price moves reflected a combination of physical supply tightness and a geopolitical risk premium. "Right now the risk premium is doing a lot of the heavy lifting," he told Reuters. Waterer expects oil prices to stay elevated for as long as the Strait of Hormuz remains contested and diplomatic efforts remain fragile.
The risks to oil prices are becoming increasingly skewed, with the potential for further disruption growing. Daan Struyven, co-head of global commodities research at Goldman Sachs, said the attacks in recent days indicated that shipping disruptions could spread and intensify.
Goldman Sachs has outlined a scenario in which oil prices could climb to as much as $120 a barrel if attacks on Middle Eastern vessels escalate. If exports return to normal, however, the bank expects oil prices to fall towards $80 a barrel. Struyven told Bloomberg that the risks to shipping had become an important factor for oil prices.
Struyven said Goldman Sachs sees "meaningful upside to crude oil prices" and also expects natural gas and refined product prices to rise. He said supply shocks in gas and fuels are larger than those in the crude market.
The duration of the disruption will be a key factor for oil prices. JPMorgan estimates that each additional month of disruption could add around $7 to $8 a barrel to Brent prices. If the disruption continues for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.
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Citi has raised its average Brent crude price forecast for the third quarter to $86 a barrel from $80, citing a longer-than-expected timeline for the reopening of the Strait of Hormuz.
ANZ analysts have also lifted their short-term Brent forecast to $95 a barrel and warned that prices could climb further if the Middle East conflict escalates. They said a prolonged standoff involving calibrated military action by the United States and Iran appeared to be the most likely scenario, potentially delaying the return of full Middle Eastern supply.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
