Shifting Wind in Oil Markets
Global oil prices took a fall Monday as traders concerned about possible supply disruptions due to the ongoing Middle East conflict retained an optimistic outlook. Falling prices by over 2 percent marked the biggest tumble in a fortnight. Brent, a standard oil benchmark, settled at a 2.5 percent drop, or $2.33, holding at $89.83 per barrel. Similarly, West Texas Intermediate, a grade of crude oil used as a benchmark, fell to $85.49 per barrel, a 2.9 percent, or $2.59 dip for the day.
Senior market analysts like Phil Flynn of Price Futures Group Inc. suggested that the current skittishness was a result of uncertainties in the geopolitical scene. “People are paring back positions until they see how this plays out;” he noted.
Market Analysts Have Mixed Feelings
Despite the fluctuating market, analysts like Natasha Kaneva from JPMorgan Chase & Co. hinted towards an inflated Brent. As they noted in their client information, Brent was overpriced by around $7 per barrel. They believe this premium, despite being a deviation from the status quo, is warranted given the geopolitical instability.
Over the years, Israel’s military conflicts since 1967 have only shown notable effects on crude prices once, during the Yom Kippur War of 1973. Complementing these statistics, Kaneva believes an extended spike in oil prices is unlikely even amidst an escalation of the conflict beyond Israeli and Palestinian borders.
The Fear of Potential Escalation
Predictions about Israel starting another ground invasion into Gaza echo within several economist circles. While acknowledging that escalating tensions could bolster economic downturns, analyst Tamas Varga of PVM forewarns of a consequential inflation surge as oil prices may take a rise. This instability might lead to a renewed regime of monetary tightening, potentially denting the growth of global oil demand.
Market Changes Amidst Ongoing Conflict
As turbulence continues, Venezuela is expected to add an extra 200 to 300 thousand barrels of crude oil into the global marketplace on a daily basis. Though it is not anticipated to have a considerable single-handed impact, the situation draws another layer of complexity to current market affairs.
Additionally, the oil industry recently experienced significant mergers. Chevron’s remarkable $53 billion acquisition of Hess Corp. led to the addition of a new oil field in Guyana and considerable shale resources in the Bakken Formation, North Dakota. The merger comes shortly after another significant acquisition, where Exxon Mobil annexed Pioneer Natural Resources for around $60 billion, cementing the climate of change in the oil industry amidst geopolitical tensions.
