Conflict Escalation Could See Oil Prices Rise Rapidly: Energy Aspects

Markets are closely watching tensions in the Middle East and any escalation in the conflict could see oil prices rise rapidly, co-founder of Energy Aspects, Amrita Sen, said in an interview.

• When asked whether an escalation in the conflict with for example the closure of the Strait of Hormuz could send oil prices up to $150/bbl, Amrita Sen answered: “Any escalation of the conflict would send the price of oil to $150/bbl because ultimately inventories across the border are super low, diesel, gasoline and products in particular, because refining has really struggled. Positive for crude is that at least there is spare capacity, Saudi Arabia and Russia have voluntarily cut production that could be brought back in the event of a genuine supply loss. But ultimately the market is extremely tight, so yes, I would expect a very rapid rise in prices if there were an escalation.”
• “Traders are really struggling to figure out how to treat this because there is no direct supply loss yet the region and the geographical proximity is probably just too close for comfort,” Sen said.
• When asked about global oil demand, Sen answered:” Demand is okay. Of course, it is slowing, which is what is to be expected, the global economy is slowing, the US for sure, a lot of our excess savings that we have accumulated over covid is coming off and we are predicting by the end of the year at least in the US all of those excess savings will be gone. Gasoline has held up really well compared to what the macro background has been, but that is the thing we are watching very closely that could actually mean that gasoline demand slows further. We have seen gasoline prices come off quite sharply. Diesel – industrial recession ongoing – European demand has definitely been weak but the rest of the world, emerging markets, is really good and China and Indian demand is holding up really well.”
• “The market is focused on Iran as it has been exporting 1.7-1.8mbpd of oil… the US could enforce sanctions, it has turned a blind eye this year but it is hard for them to do that given China is the only buyer of Iranian oil and they bypass the US banking system anyways but that is really the focus”, Sen said.