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Informist, Tuesday, Oct. 8, 2024

NEW DELHI – Amid the rising tensions in West Asia, crude oil prices had the steepest weekly gains in over one and a half years last week, Commerzbank said. Brent rose 8.4% from a week ago and WTI increased 9.1%, the steepest increase since January and March last year, respectively, Commerzbank said in a report on Tuesday.

Oil prices have spiked after Iran's missile attacks on Israel last Tuesday. Attacks on Iranian oil facilities are being discussed as a possible retaliation, as Israel has vowed to retaliate swiftly and forcefully, the report said. Iran produces around 3.3 million barrels per day, or 3% of the global oil supply. However, Iran's oil production losses can be absorbed by the Organization of the Petroleum Exporting Countries' spare production capacity, which is estimated at around 6 million barrels per day, the report said. Further, crude oil demand has also lost much of its momentum, it added. 

However, Commerzbank justified the geopolitical premium on crude oil due to supply risks in the Strait of Hormuz. The strait transports around 20 million barrels of crude oil and oil products every day. Unlike the Red Sea, the Strait of Hormuz cannot be bypassed by other transport routes, the report said.

"Although the probability of this is low, the scenario cannot be ruled out entirely should Iran no longer be able to produce and export oil of its own as a result of the destruction of its infrastructure," the Frankfurt-based bank said. "A higher risk premium on the oil price is therefore justified as long as it is unclear what the Israeli backlash will be." Further, the situation would become critical if Iran or one of its proxies attacked the oil facilities of other producing countries in the event of further escalation, the report said.

"Nevertheless, we view the recent price increase as exaggerated," the bank said. Oil demand is sluggish and Iran's production losses can be offset by ample spare production capacity of other OPEC countries, it added. OPEC is set to pump more oil from December, leading to a significantly oversupplied market next year, the report said. Even if OPEC and its allies decided not to increase output, the market could absorb a small production shortfall, it added. 

At 1644 IST, the November WTI contract on the NYMEX was $75.77 per barrel, down 2% from the previous close. The December Brent contract on ICE was $79.60 per barrel, down 1.7% from the previous close. End

US$1 = INR 83.96

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Afra Abubacker

Edited by Saji George Titus

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