JPMorgan, S&P, Rystad Share Views on Oil and Middle East
Apr 22, 2024 10:24:59 GMT -5
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Post by Blitz on Apr 22, 2024 10:24:59 GMT -5
JPMorgan, S&P, Rystad Share Views on Oil and Middle East Situation
by Andreas Exarheas|Rigzone Staff | Monday, April 22, 2024 | 6:36 AM EST
www.rigzone.com/news/jpmorgan_sp_rystad_share_views_on_oil_and_middle_east_situation-22-apr-2024-176487-article/
Oil shrugged last week’s escalation in geopolitical tensions in the Middle East.
That’s according to a new J.P. Morgan research note sent to Rigzone, which stated that, “to some extent, this could be explained by the fact that some of the geopolitical risk premium was already priced in”.
“Since last October we have viewed market reaction to political events in the region to be excessive for two reasons,” J.P. Morgan said in the note.
“First, main players in the Middle East have strong incentives to keep the conflict contained given the economic transformation currently planned and implemented in the Gulf region requires sustained absence of conflict,” it added.
“Second, the closure of Hormuz is a low-risk event as Iran will be shooting itself in the foot both economically and politically by irritating its main customer,” it continued.
In a statement sent to Rigzone, Jim Burkhard, the Vice President and Head of Research for Oil Markets, Energy and Mobility, at S&P Global Commodity Insights, said the Iran-Israel conflict has not impacted the flow of oil in the Middle East, “which is why oil price reactions to the recent military escalation have been relatively muted”.
“However, with no sign that hostilities will de-escalate, direct attacks by Iran and Israel are a new and dangerous phase of mutual antagonism that could yet spillover into the oil market,” Burkhard warned.
The S&P Head of Research for Oil Markets added that speculation about the Strait being closed rises during times of turbulence in the Middle East.
“In 2011 Iran threatened to close the Strait. On Tuesday the head of Iran’s navy said it could close the Strait. The Strait has never been closed and that is unlikely to happen today or in the future,” he said in the statement.
“But it can become more dangerous. Iran also has a long track record of harassing and seizing ships - as it did earlier this month,” he went on to state.
Burkhard pointed out in the statement that it is in no country’s interest to see the Strait closed, “including China and all the Gulf exporters”. “However, if the Iranian government felt its existence was at great risk, then extreme actions could take place - including an attempt to close the Strait,” he said.
A market update from Rystad Energy Senior Vice President Jorge Leon sent to Rigzone recently noted that Israel launched a missile attack on Iran early on April 19 in retaliation for an Iranian attack on Israel six days earlier.
“Explosions were heard in Iran’s central city of Isfahan, where a large army base is located, as reported by the media,” the update said.
“Iranian officials are downplaying the attack’s severity and denying any damage on the ground.
Importantly, reports have said that Iranian officials state there are no plans for an immediate retaliation against Israel,” it added.
“Oil prices initially reacted rapidly, jumping from $86.7 per barrel of Brent crude to $90.6 per barrel. However, prices have since dropped close to $87 per barrel per barrel at the time of writing,” it continued.
At the time of writing this article, the Brent crude price is trading below $86 per barrel.
“While it is difficult to assess whether this a temporary blip or the start of a new escalation in conflict between Iran and Israel, the initial market reaction suggests the former is more likely,” Leon’s update stated.
“Rystad Energy continues to believe that the non-escalation scenario is the most likely. However, this scenario does not mean that hostilities and armed attacks between parties come to an end,” it warned.
“This would still involve calibrated attacks between parties, as appears to have been the case with Israel’s attack … The risk, however, is that a miscalculation from any of the parties could rapidly trigger a new escalation in an already volatile region,” it continued.
“If there is one certainty, it is that geopolitics will play an even bigger role in the oil market in the coming days and weeks. As such, the market can expect significant volatility in the near future – with Friday’s attack a case in point,” it went on to state.
Rystad calculates that fair value of Brent for the month of April, based purely on supply and demand fundamentals, is slightly below $83 per barrel, the update stated.
“We reiterate that, barring a significant escalation in conflict in the Middle East, we believe that the geopolitical risk premium will stabilize and gradually decrease,” it added.
“There are two reasons for this assertion. The first one is the fact that OPEC+ holds an unprecedent large volumes of spare capacity, at close to seven million barrels per day, while the second one is that after a few weeks, in the absence of actual supply disruptions, geopolitical fatigue starts to play a role,” it continued.
by Andreas Exarheas|Rigzone Staff | Monday, April 22, 2024 | 6:36 AM EST
www.rigzone.com/news/jpmorgan_sp_rystad_share_views_on_oil_and_middle_east_situation-22-apr-2024-176487-article/
Oil shrugged last week’s escalation in geopolitical tensions in the Middle East.
That’s according to a new J.P. Morgan research note sent to Rigzone, which stated that, “to some extent, this could be explained by the fact that some of the geopolitical risk premium was already priced in”.
“Since last October we have viewed market reaction to political events in the region to be excessive for two reasons,” J.P. Morgan said in the note.
“First, main players in the Middle East have strong incentives to keep the conflict contained given the economic transformation currently planned and implemented in the Gulf region requires sustained absence of conflict,” it added.
“Second, the closure of Hormuz is a low-risk event as Iran will be shooting itself in the foot both economically and politically by irritating its main customer,” it continued.
In a statement sent to Rigzone, Jim Burkhard, the Vice President and Head of Research for Oil Markets, Energy and Mobility, at S&P Global Commodity Insights, said the Iran-Israel conflict has not impacted the flow of oil in the Middle East, “which is why oil price reactions to the recent military escalation have been relatively muted”.
“However, with no sign that hostilities will de-escalate, direct attacks by Iran and Israel are a new and dangerous phase of mutual antagonism that could yet spillover into the oil market,” Burkhard warned.
The S&P Head of Research for Oil Markets added that speculation about the Strait being closed rises during times of turbulence in the Middle East.
“In 2011 Iran threatened to close the Strait. On Tuesday the head of Iran’s navy said it could close the Strait. The Strait has never been closed and that is unlikely to happen today or in the future,” he said in the statement.
“But it can become more dangerous. Iran also has a long track record of harassing and seizing ships - as it did earlier this month,” he went on to state.
Burkhard pointed out in the statement that it is in no country’s interest to see the Strait closed, “including China and all the Gulf exporters”. “However, if the Iranian government felt its existence was at great risk, then extreme actions could take place - including an attempt to close the Strait,” he said.
A market update from Rystad Energy Senior Vice President Jorge Leon sent to Rigzone recently noted that Israel launched a missile attack on Iran early on April 19 in retaliation for an Iranian attack on Israel six days earlier.
“Explosions were heard in Iran’s central city of Isfahan, where a large army base is located, as reported by the media,” the update said.
“Iranian officials are downplaying the attack’s severity and denying any damage on the ground.
Importantly, reports have said that Iranian officials state there are no plans for an immediate retaliation against Israel,” it added.
“Oil prices initially reacted rapidly, jumping from $86.7 per barrel of Brent crude to $90.6 per barrel. However, prices have since dropped close to $87 per barrel per barrel at the time of writing,” it continued.
At the time of writing this article, the Brent crude price is trading below $86 per barrel.
“While it is difficult to assess whether this a temporary blip or the start of a new escalation in conflict between Iran and Israel, the initial market reaction suggests the former is more likely,” Leon’s update stated.
“Rystad Energy continues to believe that the non-escalation scenario is the most likely. However, this scenario does not mean that hostilities and armed attacks between parties come to an end,” it warned.
“This would still involve calibrated attacks between parties, as appears to have been the case with Israel’s attack … The risk, however, is that a miscalculation from any of the parties could rapidly trigger a new escalation in an already volatile region,” it continued.
“If there is one certainty, it is that geopolitics will play an even bigger role in the oil market in the coming days and weeks. As such, the market can expect significant volatility in the near future – with Friday’s attack a case in point,” it went on to state.
Rystad calculates that fair value of Brent for the month of April, based purely on supply and demand fundamentals, is slightly below $83 per barrel, the update stated.
“We reiterate that, barring a significant escalation in conflict in the Middle East, we believe that the geopolitical risk premium will stabilize and gradually decrease,” it added.
“There are two reasons for this assertion. The first one is the fact that OPEC+ holds an unprecedent large volumes of spare capacity, at close to seven million barrels per day, while the second one is that after a few weeks, in the absence of actual supply disruptions, geopolitical fatigue starts to play a role,” it continued.