2024-04-17 07:37:05
Oil markets remained virtually unmoved following Iran’s attack on Israel. Since the week of April 8, the price of crude oil has remained stuck at the $90 per barrel mark for Brent. An unusual inertia in this highly flammable context.
This lack of reaction is contrary to all the patterns in force for fifty years. Since the Islamic Revolution of 1979, military aggression led by the Republic of the Mullahs has been seen as a red alert for oil markets. Because this prospect is considered to necessarily lead to war; and because the consumer countries, the Westerners, fear above all that Tehran will carry out its favorite threat: the blockade of the Strait of Hormuz, through which 20% of crude oil transits.
The Strait of Hormuz, a real false threat
But this ultimate threat, once again, did not materialize. Apart from the seizure on Saturday April 13 of a ship accused of being linked to Israel in the strait area, traffic continues, as if nothing had happened.
As for war, it is a sword of Damocles that has not yet fallen. Markets are very sensitive to geopolitical risks, but they are primarily guided by fundamentals, that is to say by the balance between supply and demand. And from this point of view, the data is reassuring. Because there are provisions available everywhere in the world.
Today there is potential for growth in oil supply in the United States, Brazil, Canada and Guyana, in other words in non-OPEC countries. In the event of a conflagration in the Middle East, there is therefore substantial available capacity on the other side of the Atlantic. And the cartel also has large reserves. Because to recover prices, OPEC+, namely OPEC and Russia, has tightened the valves.
In the event of a crisis, they can therefore easily reopen the tap, supply the market and reduce pressure on prices. Saudi Arabia, the godfather of the cartel, like its ally, the Russia, both need a high crude price, the current zone of 90 dollars per Brent is ideal. But they have no interest in prices exploding, to avoid discouraging demand. This is why OPEC will increase its supply if necessary.
Strategic reserves in the event of a crisis
As for consumer countries, the major Western countries have strategic reserves. The most important is to UNITED STATES. Given the still high inflation across the Atlantic, Joe Biden could very well consider releasing part of the reserves if the oil market were to explode. To reassure Americans, on the eve of the great summer transhumance, but also a few months before the presidential election.
All this information is integrated by the oil markets, which is why they remain relatively confident. The most daring are preparing for the worst, with options placed on 3 million barrels at $250 deliverable in June.
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