The ongoing conflicts in the Middle East have continued to influence global crude oil prices and financial markets, with the Israel-Hamas and Russia-Ukraine tensions causing significant fluctuations. On Monday, a 5% surge in Brent crude was recorded during early Asian trading. The rise has been linked to these geopolitical events, which have led to increased inflation concerns from the Reserve Bank of India (RBI).
The Middle East, which contributes one-third of global oil production, is under scrutiny as the potential broadening of these conflicts could drastically impact oil prices. Iran's role as a significant oil producer adds another layer of complexity to the situation.
Goldman Sachs (NYSE:GS) energy analyst Daan Struyven has indicated that the current turmoil could disrupt factors easing tight oil supply and affect the potential US-Saudi Deal. This agreement aims at increasing oil production and Saudi recognition of Israel in exchange for Washington's defense support. Strained Saudi-Israeli relations are expected to lead to a reduction in Saudi's extra 1mb/d production cut by Q1 2025 and steady Saudi crude production of 9mb/d in 2024.
Struyven's baseline scenario predicts Brent crude reaching $100 per barrel by June 2024 and potentially $104 by year-end due to tight supply risks from Saudi Arabia. This forecast also anticipates a resumption of Iranian oil supply risks, with Iran's crude production for 2024 predicted to fall below pre-US withdrawal levels from the Joint Comprehensive Plan of Action.
Exchange-traded funds (ETFs) such as United States Oil Fund (NYSE:USO), iShares MSCI Saudi Arabia ETF, VanEck Israel ETF, and ARK Israel Innovative Technology ETF are likely to be affected by these developments. The Israeli tech sector may experience particular impacts. Furthermore, S&P 500 and Nasdaq have had a bleak start due to these Middle East tensions.
The upcoming OPEC's World Oil Outlook is expected to provide more insights into the long-term demand and supply dynamics. Since February 2022, energy prices have been on a steady uptick, which has necessitated a strategic alignment of India's oil imports due to its substantial consumer base.
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