Crude oil prices have increased with a sharp increase in tensions between the United States and Iran. You can not stay high for a long time.
Tehran pledged reprisals on President Donald Trump’s orders for the killing of the top general Qasem Soleimani. However, analysts expect a limited reaction, which will not disrupt the raw supply significantly and will keep oil prices under control.
Eurasia Group analysts, a risk consultancy, argue that retaliations are calibrated carefully and probably stop short of what is thought to be a big, or even limited, military conflict.
In Iraq where the Soleimani aerial strike has occurred, the Eurasia Group expects about a month of low-level conflicts between Iranian militias and the US forces. The violence against shipping in the Persian Gulf is also likely to resume in Tehran.
Oil production facilities that are part of Iran’s global enemies in the United Arab Emirates or Saudi Arabia, the world’s largest exporting crude oil, are another obvious goal. The US accused Iran of a missile strike in September against Saudi Arabia, which briefly destroyed over half of the oil production of the Kingdom.
This would make it necessary to work out prices and combat any upward pressure caused by a volatile Iranian response by existing market forces, including an increasing supply surplus.
In its most recent petroleum market survey, the International Energy Agency said it anticipates that the supply of oil will be “significant” earlier this year. The surplus would materialize despite limiting the production of OPEC and its allies.
The danger to troubled supplies from the Middle East has been discussed by investors for months. In September oil prices rose more than 14% after coordinated attacks on Saudi Arabia’s power plants, which disrupted 5% of global oil supplies a day.
Brent crude, the world’s standard, price higher than $69 a barrel after the attack. On Friday, the price of Brent was close to that point.
According to the International Energy Agency, it took Saudi Arabia just 11 days to recover production following the September attack. Brent rates had fallen to less than $57 per barrel by the start of October.
While the attack unnerved investors, there were signs of people preparing it, by avoiding hits on the vulnerable part of its facilities, trying to limit the damage.
This compares with the strategies used by the Iraqi military during its withdrawal from Kuwait during the 1991 US invasion when well-headed people were attacked, triggering weeks’ burning inferno.
Trade shipping may also be threatened by Iran in the region.
Last year, attacks on two vessels–one carrying oil and the other carrying a chemical cargo–caused a temporary increase in petroleum prices across the Gulf of Oman.
While there is a possibility of a more serious confrontation between Iran and the United States and its alliés, including a weak economy and uncertain domestic political environment.
This could result in greater fluctuations in oil supplies and increased rising price pressure.
Prices can reach up to $80 per barrel in the event of a conflict, according to the Eurasia Group.
According to the International Energy Agency, Iraqi oil production collapsed following the invasion led by the US in 2013 but has since recovered strongly, reaching 4.7 million barrels a day by late 2019.
Energy Aspects ‘ Sen said that replacing the type of oil that is heavier in southern Iraq than any other form of raw material would be difficult. Alternate source supply from Venezuela was greatly reduced.