The International Energy Agency warned Thursday the Israel-Hamas war had caused a spike in geopolitical risk in the Middle East that had put energy markets “on tenterhooks” over the potential for interruptions to the global oil supply. File photo by EPA/STR
A spike in geopolitical risk in the Middle East caused by the Israel-Hamas war has put global energy markets on edge, the International Energy Agency warned Thursday.
Saturday’s unprecedented Hamas assault on Israel saw traders price in a risk premium of between $3 and $4 per barrel when markets re-opened late Sunday night over supply fears given the region accounts for more than a third of the global seaborne oil trade, the IEA said in its October Oil Market Report. Advertisement
Prices have since stabilized, with the benchmark Brent futures contract trading at about $87 a barrel and while there had been no direct impact on physical supply, the IEA said markets would “remain on tenterhooks as the crisis unfolds.”
“The Middle East conflict is fraught with uncertainty and events are fast developing. Against a backdrop of tightly balanced oil markets anticipated by the IEA for some time, the international community will remain laser-focused on risks to the region’s oil flows,” said the intergovernmental organization.
“The IEA will continue to monitor the oil market closely and, as ever, stands ready to act if necessary to ensure markets remain adequately supplied.” Advertisement
Oil prices had threatened to breach the $100 per barrel ceiling in mid-September after Saudi Arabia and Russia agreed to extend production cuts through the end of 2023 and crude oil and distillate inventories fell to exceptionally low levels.
However, the price gains quickly refocused market attention on the potential impact “higher for longer” interest rates could have on economic growth and in turn, growth in oil demand.
Concerns surrounding demand sent Brent futures tumbling by more than $12 per barrel to around $84 a barrel in the first week of October as supply fears were quickly supplanted by deteriorating macroeconomic indicators and signs of “demand destruction” in the United States, where gasoline deliveries plunged to two-decade lows.
The agency said demand destruction had hit even harder in emerging markets where currency effects and the removal of subsidies amplified the rise in fuel prices.
However, it said it expected global demand gains of about 2.3 million barrels a day driven by strong growth in China, India and Brazil, with China accounting for 77% of the total.
The IEA’s 2024 forecast sees global oil demand growth slowing to 900 kb/d in 2024 as the post-COVID-19 rebound cools and slowing economic growth and energy efficiency gains and the rise of renewables weigh on oil use. Advertisement
