Oil futures prices are disconnected from reality on the ground in the Middle East and should be trading closer to $150 a barrel for some physical crude prices, Amrita Sen, founder and director of market intelligence at Energy Aspects, told CNBC on Friday.
The market is surprisingly complacent against the intensity of the hostilities in the Middle East as the Iran-aligned Houthis target Saudi energy and other infrastructure, Sen said.
“Futures prices are just struggling to price in what the true fundamentals are, in part because everything that is driving the market right now is about the mid-term elections and that somehow the U.S. government is going to get prices down,” the analyst noted.
“Whatever is happening on the ground, the market seems to just ignore that,” she added.
“I find it fascinating that the market is happy to ignore events on the ground, actual infrastructure damage, and actual disruptions to shipping,” said Sen, noting that the crisis has extended to an “unprecedented” shipping crisis.
The oil crisis has extended into the shipping sector with a large tanker fleet tied up in ship-to-ship transfers outside the Strait of Hormuz, pushing global freight rates to record highs and reducing vessel availability for other routes.
The shuttle-shipping through the Strait of Hormuz is “very inefficient,” Russell Hardy, chief executive officer at the world’s biggest independent oil trader, Vitol, said at the Energy Intelligence Forum in London this week.
“Now we have more crude oil coming out of the Middle East, but it is turning into a shipping crisis,” Hardy added.
“There is really not quite enough shipping to go around,” the executive noted.
Meanwhile, the crude oil futures prices fell early on Friday in Asian trade, but Brent crude held above $100 a barrel and was on track for a weekly gain as the number of attacks on tankers in the Strait of Hormuz surged in the past week, threatening to stop the rebound in Middle East oil supply in its tracks.
By Tsvetana Paraskova for Oilprice.com
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