Oil Market Gyrations Amid Fragile Ceasefire
TEHRAN (Defapress) - The renewed escalation of tensions in West Asia has presented the oil market with a strange contradiction. While there is a risk of severe oil shortages due to disruptions in traffic through the Strait of Hormuz, there are also signs of oversupply. Analysts believe that both scenarios are detrimental to the global economy and that the market will face severe price fluctuations until stable political agreements are reached.
In the latest development, the US Treasury Department revoked Iran’s oil trading license and gave companies until July 17 to finalize their deals. The Iranian Foreign Ministry called this action a clear violation of Article 10 of the Memorandum of Understanding and threatened to retaliate. Immediately, tanker traffic in the Strait of Hormuz fell sharply, with only 14 tankers passing through on Wednesday, the lowest since the ceasefire was signed on June 18. Brent crude prices also rose from $72 to $79 per barrel in two days.
On the other hand, with the return of the risk of supply disruption, the market has once again added to prices the “geopolitical premium” that had disappeared after the easing of tensions. Economic analyst Sergei Varvolomov predicted that if tensions seriously escalate, Brent could return to $100, and even under normal conditions, oil would trade at a $4-$8 premium until a stable political agreement is reached.
In addition to concerns about shortages, market participants are also concerned about the risk of oversupply. The UAE, which has left OPEC+, has increased its production to more than 3.8 million barrels per day, and Abu Dhabi National Oil Company is building a new pipeline to bypass the Strait of Hormuz through Fujairah, which is scheduled to be launched next year. Meanwhile, OPEC+ decided at a meeting on Sunday to increase its production by 188,000 barrels per day from August to maintain market stability and speed up the process of compensating for voluntary production cuts.
Experts consider the range of $65-85 to be favorable for consumers and the global economy. Prices below $60 mean insufficient investment in the oil industry, and prices above $90-95 will put serious inflationary pressure on the economy. Among producers, Saudi Arabia needs a price of about $80-95 to cover the costs of the “Vision 2030” program, and Russia needs at least $65-68, taking into account mandatory discounts.
In the event of a severe shock, oil prices could cross the $120 mark, which would be catastrophic for the US and global economies. However, analysts believe that such a jump will not occur if the region’s oil and transportation infrastructure is not seriously damaged.
The current situation is such that any political decision can cause fluctuations of $10 in either direction. While increased production by OPEC+ and the UAE could partially compensate for the shortages caused by the new sanctions, the International Energy Agency predicts that by 2027, the oil supply surplus will reach 8 million barrels per day, which is a serious threat to market stability. Ultimately, experts believe that the oil market is currently stuck between the “anvil of shortage and the hammer of surplus,” and both scenarios will have serious consequences for the global economy.
