Crude oil prices were set for a sharp decline this week despite ongoing hostilities in the Middle East, as traders pinned their hopes on President Trump’s statements suggesting the war would end soon.
Brent crude was trading at $107.98 per barrel at the time of writing, and West Texas Intermediate was changing hands for $94.12 per barrel. For Brent, the decline would be from $111 on Monday, and for WTI, the dip is from over $98 per barrel. Still, both benchmarks are considerably higher than they were at the start of the year, and chances are the rally will extend, even if the fighting stops soon.
“Despite talks of de-escalation, oil is trading on war longevity, not just headlines. Any direct damage to oil infrastructure or prolonged conflict could force markets to rapidly reprice higher,” Phillip Nova analyst Priyanka Sachdeva said, as quoted by Reuters.
ING commodity analysts, meanwhile, updated their outlook on oil and gas, putting forward three scenarios, with the base-case one assuming no structural supply disruptions thanks to a speedy end to the hostilities. If that scenario fails to materialize, however, there will be structural changes in oil and gas markets and the respective negative impact on the global economy.
“Generally speaking and for the time being, this is still mainly a supply-side shock, pushing up inflation and posing new challenges for central banks,” ING’s analysts said.
Reuters reported that the war has so far removed some 11 million barrels daily in supply from the oil market, although other estimates see the figure as high as 13 million barrels daily, rising to 14 million barrels if the war continues for longer.
Even the current level of disruption is prompting austerity measures in some Asian countries, with Australia also facing a fuel supply squeeze due to the absence of a strategic reserve.
By Irina Slav for Oilprice.com
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