Oil Prices Soar 8% in 3 Days, May Hit $100

At the beginning of the fourth quarter,global investors have once again turned their attention to the Middle East.The benchmark international oil price,Brent crude,has risen by more than 8% this week,on track to record the largest weekly increase since January 2023.

According to Xinhua News Agency,as tensions between Israel and Lebanon escalate,Iran launched a large-scale missile attack on Israel,further heating up geopolitical tensions.The market is closely watching the potential threat of Israel to Iranian oil facilities,with institutions warning that the safety of the Strait of Hormuz may determine whether international oil prices will break the $100 mark for the first time in two and a half years.

Market Focus on the Security of Iranian Oil Exports

Following Iran's missile attack on Israel,the world is waiting to see how Israel will choose to retaliate and whether such a response will disrupt oil flows in the region.

As reported by CCTV News,on October 3rd local time,the Iranian government conveyed to the United States through Qatar that the phase of unilateral self-restraint by Iran has ended.Any attack by Israel on Iran will be met with an "unconventional response," including Iran striking Israeli infrastructure.Iran also emphasized that it does not wish for a regional war to break out.

It is noteworthy that when U.S.President Joe Biden was asked whether he would support Israel attacking Iranian oil facilities,he stated,"We are discussing this issue."

The Middle East accounts for about one-third of the global supply,and an escalation of the situation could severely impact the energy market.Claudio Galimberti,Chief Economist at energy market research institution Rystad Energy,said in a report: "As conflicts intensify,the possibility of supply disruptions increases,especially but not limited to Iran."

Iran is the third-largest crude oil producer in OPEC,following Saudi Arabia and Iraq.Industry statistics show that Iran's oil production rose to a six-year high of 3.7 million barrels per day in August,with exports reaching 1.8 million barrels per day.Citibank stated on the 2nd that a significant blow by Israel to Iran's export capacity could remove 1.5 million barrels per day from the market,and attacks on downstream infrastructure could take 300,000 to 450,000 barrels per day offline."These developments add another layer of uncertainty to the oil market,and the ultimate impact on global oil balance and prices depends on the extent of Israel's response and whether we see any substantial damage to Iran's oil industry," Citibank said.

According to preliminary estimates by consulting firm Clearview Energy Partners,if the United States and its allies impose a new round of economic sanctions on Iran,oil prices could rise by $7 per barrel,and if Israel attacks Iran's energy infrastructure,oil prices could rise by $13 per barrel.Kevin Book,Managing Director of ClearView Energy Partners,believes that the oil market is not currently fully recognizing the risks in the Middle East.

The Strait of Hormuz is once again in focus.As the regional situation takes a sharp turn for the worse,all parties are already assessing potential solutions for the gap in Iran's oil supply.

On the 2nd,the oil-producing country alliance OPEC+ held a ministerial meeting,where the committee emphasized the importance of achieving full compliance and compensation for production cuts,while maintaining the plan to increase production that began in December.First Financial Daily reporters noted that the market has once again heard reports of internal discord.After initiating production cuts last year,the organization is facing fierce competition for market share from non-OPEC oil-producing countries,including Brazil and Guyana.

In theory,OPEC+ can make up for the loss of this oil,as the organization currently has about 5.8 million barrels per day of spare production capacity.

However,the release of production capacity may involve many factors.Stephen Innes,Managing Partner of SPI Asset Management,said that even so,if Iran's production is significantly reduced,making up for the lost oil will not be "as simple as flipping a switch." "It takes time,especially when the supply chain still faces many obstacles," he said.

For the US government,it may also stabilize the market by releasing emergency reserves of strategic petroleum reserves,as it did at the beginning of the Russia-Ukraine conflict.According to data from the US Energy Information Administration (EIA),the scale of US strategic crude oil reserves last week was 382.5 million barrels.

However,in the current market environment,the most destructive may be the blockade of the Strait of Hormuz.This maritime passage between the Persian Gulf and the Gulf of Oman is the world's most important oil transportation route.In the first half of 2023,the average oil flow through the strait was 21 million barrels per day,accounting for about 21% of global oil liquid consumption.ClearView Energy Partners said that the disruption of the Strait of Hormuz could drive oil prices above $100 per barrel.

Citigroup warned that any closure of the Strait of Hormuz would be a turning point for the global oil market and the world economy."In this case,the global oil market will be in uncharted waters,and oil prices may experience a significant surge,far exceeding previous historical highs," the report said.

However,Citigroup also emphasized that this situation is unlikely to occur.Nevertheless,due to fluctuations in crude oil prices,this may make consumers and businesses uneasy about the stability of the global economy.Since October,US Treasury bond yields have been fluctuating upwards,the yield curve has become steeper again,there has been a surge in demand for the dollar as a safe haven,and the US dollar index has set a six-week new high.As the US election approaches,if the Democratic government seeks re-election,stabilizing the energy market as soon as possible is undoubtedly a problem that needs to be resolved urgently.