The US and its allies launched airstrikes on more than a dozen Houthi targets in Yemen, in retaliation for a wave of attacks on merchant ships in the Red Sea.
The attack represents a major escalation of tensions in the Middle East that have been simmering since the Hamas attack on Israel in early October. Brent rose as much as 2.5% on fears there would be more shipping disruption and the conflict could develop into a broader regional conflagration.
With the Houthis promising continued attacks on shipping and Iran condemning the action, analysts say this is what the heightened geopolitical risks mean for oil markets:
UBS Group AG
Oil's rebound was driven by the market's perception that this is an escalation of the conflict, said Giovanni Staunovo, commodity strategist at UBS Group AG. However, “any risk premium will only hold if there are oil supply disruptions,” he said.
“We expect higher prices in the coming months and expect Brent to rise above $80 per barrel due to OPEC+ production cuts, leaving the oil market somewhat undersupplied,” Staunovo said.
ING Group NV
The US and British airstrikes did not come as a surprise, but given the threat ships face and the disruptions to trade flows caused by Houthi attacks, it is clearly an intensification of the conflict, according to Warren Patterson, head of commodity strategy at ING. Group NV.
That signals a “greater potential for disruptions and the need for ships to divert,” which will have a bullish effect on oil prices, he said, and the bigger risk is that if the conflict spreads and the market begins to see threats for the currents coming from the Persian Gulf. . “While we believe the risk of this is low, the impact would be significant.”
Vanda insights
“A large part of the new risk premium has already been priced in,” says Vandana Hari, founder of consultancy Vanda Insights. “We may see another pile of crude oil on another few dollars… I expect a degree of restraint and backchannel diplomacy will prevent tensions from spiraling out of control and causing a regional conflagration,” she said, as none of the powers involved is involved. want the worst-case scenario to play out.
“The price swings will absolutely continue as the situation evolves. It's an uneven tug-of-war between a bearish view on fundamentals and a supportive risk premium for the Middle East,” Hari said. “As of now, both can be expected to remain in play for the next few months.”
Westpac Banking
“The US and Britain had warned that action would take place if the Houthi rebels continued their attacks, so this action should not be particularly unexpected,” said Robert Rennie, head of commodities and carbon research at Westpac Banking Corp.
Markets have arguably been overly focused on rising global supply until the end of 2023, while the sharp deterioration of the Red Sea situation in 2024 has so far remained underexposed, he said. Given that Houthi leaders have said any US attack would not proceed without a response, West Texas Intermediate could rise above $75 a barrel and Brent could exceed $80.
Saxo Capital Markets
The airstrikes have increased the risk of an escalation, which could put pressure on oil and port demand in the very near term, said Charu Chanana, market strategist for Saxo Capital Markets Pte.
There are upside risks to oil prices if the conflict escalates, and volatility could increase “as oil markets continue to assess the various catalysts of OPEC+ cuts to non-OPEC supply and demand prospects in the US and China.”
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