Things are still pretty much building up when it comes to West Asia. We have already seen a 12% spike on crude in the last one week alone. Where are we headed?
Vandana Hari: Whatever risk premium the market had to assign on account of the Israel-Iran tensions is already embedded in crude. We saw most of that jump happening on Friday when Brent and WTI settled higher on the day by about 7%. At one point when the markets opened, crude Brent jumped back towards $78 but very quickly pulled back very similar to the price action we saw on Friday when it actually settled nearly $3 below the intraday high and we have seen the same action this morning.
What that tells me is that there is a bit of tug-of-war in the market with regard to how much supply risk to assign to this whole situation. As of now, the consensus is there is not a real risk, a threat to supplies from the Middle East or the waterways such as the Strait of Hormuz and the Bab al-Mandab Strait. So, crude will be in a holding pattern. The market will be in a wait-and- watch mode. My base case remains that Iran and Israel’s strikes against each other will remain relatively restrained and at least deliberately they will not be targeting the oil infrastructure in the wider region.
We know that both of them have targeted to some extent infrastructure in each other’s countries, upstream and downstream oil and gas, but the wider Middle Eastern oil production and supply is not under threat as of now.
What do you believe the next OPEC plus action could be? Are they going to increase their supply to try and stabilise the market or are they going to hold back to ensure some profits?
Vandana Hari: The statement that came out of OPEC on Friday was that they did not see any direct threat to supply, any shortages in the market and no need to act immediately to the situation which was a bit of a contrast to the international energy agency which had earlier issued a statement saying that its members stood ready to put oil into the market from their emergency reserves.
So, in terms of what OPEC plus does in the coming months, my expectation before this Israel-Iran conflict broke out was that the eight members that have been accelerating the unwinding of their 2.2 million barrels per day of cuts will remain on that trajectory. They have already done that for three months and I expect them to remain. This is more a response to internal tensions and an attempt to preserve cohesion and peace and calm, solidarity within the group rather than anything necessarily in the market outside. This is OPEC plus turning inwards and looking at what it needs to do to stay intact. I expect OPEC plus to stay on that trajectory. By the time they make their next decision on their monthly budget, the unwinding of the cuts, hopefully the Iran-Israel conflict dust would have settled on it. So, I do not expect this particular conflict to necessarily change that trajectory of accelerated unwinding of OPEC plus cuts.
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