The American “Oil Price” website published a report discussing the Red Sea crisis and its impact on the oil market.
The website said, in the report translated by “Arabi 21,” that Brent crude closed trading last week at a price above $81 per barrel, and this is a strong increase since the beginning of the week when it was trading at about $78 per barrel. However, these prices are the same as when the Yemeni Houthis started attacking ships in the Red Sea.
The abnormal price movement may have played a role in Saudi Arabia’s decision to halt work on expanding its production capacity and contributed to increased uncertainty about the long-term future of the oil industry in investment circles. It has also made oil traders complacent, which is dangerous because the situation is very dynamic, and there are already warnings that it could change quickly.
The site pointed out that oil prices actually fell when the Houthis hit the first ship in early November – from more than $90 to about $77 a barrel by early December – and then no one was worried about supply disruptions in the Red Sea because The Houthis did not target oil tankers.
What is most interesting is that even when they attacked an oil tanker, prices did not rise, and the prevailing sentiment in the oil markets was that the supply was sufficient, and there was even a belief that there was an excess supply of oil.
The website explained that there were some good reasons for this feeling, as fears of an escalation of the war between Israel and Hamas have decreased amid talks about a ceasefire, and the lower the risk of escalation, the lower the risk of interruption of oil supplies.
There is the surplus capacity argument, which ING analysts reminded the market of last week when they wrote that OPEC has about 5 million barrels per day of spare production capacity, including 3 million barrels per day in Saudi Arabia. Traders seem to assume that if supplies are cut off in the Middle East, the Saudis will step in to help, which they may not.
The website added that when sanctions threatened Russian oil and fuel in 2022, prices rose to a number of three figures. In the summer of that year, because of his concern about the rise in retail gasoline prices, President Biden asked the Saudis to increase production, and the Saudis responded, “We will see,” and then did nothing.
This will likely happen again if prices rise again for any reason. The reason for this is that the Saudis have been trying for months to raise prices to no avail, with the market simply refusing to acknowledge the possibility of demand exceeding supply. This is due to expectations such as the monthly report issued by the International Energy Agency on the market. Oil, which often reduces demand trends.
The website reported that for this year, for example, the International Energy Agency expected oil demand to grow by 1.2 million barrels per day, while supply should expand by 1.5 million barrels per day, but the estimates failed to incorporate the impact of the Red Sea crisis on oil demand. Which was very noticeable. Changing the course of ships from the Suez Canal to the Cape of Good Hope adds more than a week to the duration of trips between Asia and Europe, and the vast majority of these ships operate on petroleum fuel. Changing the course leads to an increase in demand for oil by about 200 thousand barrels per day so far.
The website confirmed that this means that demand for oil will grow this year by 1.4 million barrels per day instead of 1.2 million barrels per day, and perhaps higher than that. Nothing is certain about non-OPEC supplies, and supply forecasts usually focus on US production growth. But this year, the US Energy Information Administration said it expects a sharp slowdown in production growth, and although the IEA’s assessment has been wrong before, it’s still worth monitoring pessimistic scenarios in the near future as well.
Standard Chartered has also warned that global oil supplies may be much lower than previously thought, and that the market could be heading toward a deficit this month, to the tune of 1.6 million barrels per day. The Energy Information Administration is also forecasting an oil supply deficit for the month. February, at a value of 2.3 million barrels per day.
The website pointed out that one of the ironies of the price stabilizing factor is the repercussions of the Red Sea crisis itself. Trade between Asia and Europe has become more expensive due to longer journeys, which has hindered the expansion of trade activity and put a damper on oil prices. This is currently working with oil traders who focus more on economic updates rather than oil industry news. But most analysts still warn of the possibility of escalation in the Middle East as a danger that exists but has not yet manifested itself. For this reason, oil prices are where they are now, and there does not appear to be interest in further escalation, which is really good news for oil consumers.
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2024-02-15 06:12:52
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