KEY POINTS
- Oil prices surged due to escalating conflict in the Middle East, raising fears of supply disruptions.
- Despite the spike, gains were limited by a stable global supply outlook and efforts to boost output.
- Traders are closely monitoring geopolitical tensions and supply chain developments.
Crude has gone up as violence in the Middle East increases, raising concerns over supply disruptions. The conflict has caused turbulence in the markets with traders waiting for any signals of disruption of supply chain in the oil endowed area. Brent crude went past $90 per barrel due to increased worry on how ongoing geopolitical risks might impact the supply of oil to the global markets.
But the increase in price has been moderate by a relatively fixed global supply situation as the major producers strive to meet the demand and balance the market. The ability of the key producers to increase their output has ensured that prices do not go even higher.
Middle East conflict raises supply concerns
The Middle Eastern tensions have always had the potential to rock the oil markets around the world and the recent escalation is no different. Since the region is home to some of the largest oil producers, any sign of increased violence raises questions about the safety of supply and transport of oil and related facilities.
Markets have become especially concerned that tensions in the region may lead to lower export levels, or even closure of strategic choke points like the Strait of Hormuz.
Although the current conflict has not caused any direct supply disruptions, it has increased the uncertainty level to the extent that traders seek cover.
Reuters has quoted analysts who have said that any increase in violence could lead to a more sustained increase in prices if key infrastructure is at risk. For now, however, the global oil supply does not look like it will balloon much more, keeping the price from rising even higher.
Global supply and demand balance
However, the current geopolitics has affected the market and although the supply and demand of oil has not allowed for further escalation of the price, the market is still jittery. OPEC and stemming from it, its allies that include Russia have made efforts to show that it will control production in order to optimize market balance.
Also, there are some countries that are interested in increasing production to counterbalance the supply threat from the Middle East; so, overall global supply does not look too threatened.
Current global production has been sufficient for increasing energy needs as more countries come out of their economic recession. But even with the current tensions, the global market is not prone to sharp fluctuations as in the past, mainly because the sources of supplies have diversified and producers are ready to increase production in the event of need.
Eyes on future developments
That is why traders and analysts do not lose sight of the events happening in this region: the war in the Middle East is proceeding. Any break from the current conflict or even further worsening of the situations can lead to highly unpredictable changes in oil price in the short run.
However, the market will also be interested to know how OPEC and other major producers are likely to adjust supply and demand factors. While the current global supply outlook has helped to mitigate the immediate effect, sustained volatility in the Middle East would push up prices and hit consumer and industrial import-dependent sectors.
