Oil Price Surge Not Expected

Commodities | Apr 15 2024

ANZ Bank analysts do not see the weekend's attack on Israel by Iran as sparking a new surge in oil prices.

-Oil price response to attack muted
-Geopolitical risk premium already priced in
-Plenty of spare capacity to offset any supply disruption

By Greg Peel

Iran's attack on Israel on the weekend brought about only a muted increase in oil prices. ANZ Bank analysts put this down to two reasons.

Firstly, a geopolitical premium has already been applied to oil prices since October 7 when Hamas attacked Israel. Given Hamas is backed by Iran, the market's concern remains that a disruption/sanctions on Iranian oil supply would lead to a surge in prices.

Israel's bombing of the Iranian consulate in Syria in early April, for which last weekend's attack on Israel was retaliation, served only to escalate that fear. That attack did not come out of the blue, being well flagged by US intelligence days beforehand.

The impact of that retaliation was therefore already priced in. Also priced in was ongoing tit-for-tat destruction of Russian and Ukrainian oil/power facilities, which has been in train for some time.

The fear now is Israel retaliates against the retaliation, despite suffering negligible damage from the attack. That would likely lead to war with Iran, and that would put further pressure on oil prices.

But as ANZ Bank notes, there is ample spare oil capacity ready to be utilised should supply be disrupted. OPEC-Plus recently reiterated its supply policy, with recent production cuts extended until the end of June. However, that leaves it with approximately 6.5mbpd of spare capacity. Most of this could be quickly brought online should disruptions emerge.

ANZ is thus maintaining its short term (0-3 month) price target for Brent crude at US$95.00/bl.

Brent rose 0.25% in Friday night's trade to US$90.45/bbl.

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