Oil Markets Assess Fallout from Israel Attacks

The markets are digesting the possible fallout for oil after the Hamas attacks in Israel over the weekend. The attacks draw in to question the US diplomatic effort to secure a grand bargain with Saudi Arabia/unwind 1mn bpd cuts as well as the potential fallout with Iran – a country that has significantly boosted oil exports this year despite long running US sanctions.

• RBC: “The Israeli government is vowing an unprecedented response and it is hard to envision how Saudi normalisation talks can run on a parallel track to a ferocious military counteroffensive,” according to Helima Croft, head of global commodity strategy at the bank.
• Commonwealth Bank of Australia: “Our point of concern is very much around oil supply and exports out of Iran.” Vivek Dhar, mining and energy commodities analyst at the bank said - “If we do see blame assigned by the US to Iran for this we could see a lot of this year’s increase in Iran’s oil exports reversed,” Dhar said. “The impact on the market would be about 0.5 to 1 per cent of global supply — that is sizeable.”
• Goldman believes the escalating conflict in Gaza reduces the likelihood of a near-term normalization in Saudi-Israeli relations and reduces the probability of an early unwind of Saudi output cuts. Goldman also said it tilts Iranian oil output projections to the downside.
• Citigroup: The bank highlights higher chance of strikes on Iran as well as increased likelihood Saudi-Israeli rapprochement will be postponed and also highlighting reduced chance of 1mn bpd Saudi cut early unwind.
• Morgan Stanley: Expects the impact on oil markets “likely limited” but that could change if the conflict spreads to other countries.
• On a daily basis, Iran has exported at least 1.61 million barrels of oil and refined products this year according to TankerTrackers – the bulk of which has been heading to China.
• Iran was reported to be targeting a crude output rate of about 3.4mn bpd in late September according to the National Iranian Oil Company. It reported production levels of about 3.3mn bpd September 20^th.
• The Wall Street Journal reported on Friday afternoon (before the attacks) that “Saudi Arabia has told the White House it would be willing to boost oil production early next year if crude prices are high—a move aimed at winning goodwill in Congress for a deal in which the kingdom would recognize Israel and in return get a defense pact with Washington, Saudi and US officials said”.