Oil Prices this Monday, Jan 6, experienced a surge of 2%, with Brent increasing above US$70 a barrel after U.S. President Trump threatened to impose sanctions on Iraq amid mounting tensions with Iran in the Middle Eastern region.
A major class of sweet light crude oil, Brent Crude, experienced its futures soared to a high of US$70.27 a barrel at 0222 GMT, up to US$1.67, or 2.4 per cent, from Friday’s defrayal.
U.S. West Texas Intermediate (WTI) crude was at US$64.39 a barrel, up 2.1 per cent, or US$1.34, after reaching US$64.44 earlier, its highest since April.
The gains long-drawn-out on Friday with a more-than-3 per cent surge after a U.S. airstrike killed top Iranian general Qasem Soleimani in Baghdad. The killing has heightened concerns about conflicts across the Middle East, and it might disrupt oil supplies from a region that produces nearly half of the world’s oil production.
President Trump on Sunday threatened to impose sanctions on Iraq after the Iraqi parliament voted in favour of calling the U.S. and its allies to withdraw their forces from the country.
Trump administration released the statement that the United States would retaliate against Iran if Tehran were to strike back after the killing of Soleimani.
Any further response from either side can ignite the beginning of a long cycle of regional escalation with substantial risks to U.S. assets and Middle East energy infrastructure, said Ayham Kamel, an analyst at Eurasia Group.
“At least the risk of a limited war is obvious. And, it would include potential Iranian attacks on Gulf energy targets and direct naval encounters between the U.S. and Iran,” Kamel added.
Based on rising risks to oil infrastructure in the Middle East, experts anticipate oil prices in 2020 to range from US$65 to US$75 a barrel. Meanwhile, Caroline Bain, the Capital Economics analyst, expressed that “Friday’s strike has all but eliminated the probability of a lifting of Iranian sanctions, which is a large downside risk to our oil price forecast.”
Escalating tensions between Iran and the U.S. have already caused unprecedented interruptions to oil markets, but they’ve been short-termed so far. Washington, in the preceding years, accused Tehran of sabotage attacks on supertankers and a missile and drone strike on Saudi Arabia’s Abqaiq crude-processing plant in September, which remained the largest single supply halt in the industry’s history.
Harsh anticipations
The Iranian leadership has signalled that it will possibly retaliate by targeting U.S. military installations and bases in the Middle East. It also expected to mobilize its network of militias across the region.
Iraq – the second-largest oil-producing country in the Organization of Petroleum Exporting Countries (OPEC) – had pumped around 4.65 million barrels a day last month. Its nearest neighbours in the region – Saudi Arabia, Iran and Kuwait – produce about 15 million barrels a day together. Most of their shipping leaves the Persian Gulf through the Strait of Hormuz, a narrow waterway that Iran has threatened to shut down if a war occurs.
Closing words from the analysts of the oil industry
According to analysts, last year’s rise of 23 per cent in oil could already have taken it to levels where not much room is left for further surge.
“The oil market always thinks the worst, so a lot of the general risk is already priced in,” said the managing director of Abu-Dhabi-based Manaar Group, Jaafar Altaie.
“Prices at US$70 a barrel assumed to be the worst-case scenario, and we witness them holding there, in between US$60-US$70, for the first quarter,” Altaie added to his statement.
Altaie said that the general risk to supply would be a strike on Iraq’s southern fields.
Christof Ruehl, a researcher on energy and policy at both Columbia and Harvard universities, told Bloomberg television this Sunday that Iran would likely continue to attack tankers and energy infrastructures in the region as it’s accused of having done in the recent few months.
“They’re walking a tightrope” and face counter offence if they react too strongly,” said Ruehl.