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Oil Price Rally Muted by Lack of Supply Disruption and Spare OPEC Cap: HSBC

OIL

The muted reaction in oil prices to the Iran strike on Israel suggests the market believes an escalation into a broader regional conflict is unlikely according to HSBC.

  • The risk premium is around the mid-single digits and could partly unwind if Israel shows restraint, and an escalation may not necessarily lead to supply disruptions.
  • Upside pressure on prices is limited by a lack of supply disruptions since the start of the Israel-Hamas conflict and with significant OPEC+ spare capacity available in the event of physical supply disruptions.
  • Spare capacity is estimated to peak at over 6mb/d in June before falling towards 5mb/d in the medium term.
  • The recent price rally increases the probability that OPEC+ will start to partly unwind supply cuts in 3Q.
  • Oil market fundamentals are supportive with an average supply/demand deficit in 2Q/3Q of 1.4mbd.
  • The Brent forecast is unchanged at $82.5/bbl for 2024 and $76.5/bbl from 2025 onwards.
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