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Informist, Friday, Jun. 13, 2025

 

By Ashutosh Pati

 

MUMBAI – Rising geopolitical risk premiums and supply jitters pushed crude oil prices to the highest levels in five months early Friday after Israel launched attacks on Iranian nuclear and military facilities. A prolonged war in the oil-rich region could disrupt supply and might even turn the anticipated surplus in the oil market into a deficit, analysts said.

 

Israel launched preemptive strikes against Iran early Friday, targeting Tehran's nuclear programme. A state of emergency has been declared in Israel, Israeli Defence Minister Israel Katz said. "Following the State of Israel's preemptive strike against Iran, a missile and drone attack against the State of Israel and its civilian population is expected in the immediate future," CNN quoted Katz as saying. Israeli Prime Minister Benjamin Netanyahu confirmed the military operation would continue for a while. "This operation will continue for as many days as it takes to remove this threat," CNN quoted him as saying.

 

Iran has since retaliated to the airstrikes and launched drone attacks on Israel, according to media reports. "Iran launched approximately 100 Unmanned Aerial Vehicles towards Israeli territory, which we are working to intercept," CNBC quoted Israel Defense Forces spokesperson Effie Defrin as saying. 

 

"This is a significant escalation and differs from the strikes we saw last year, which spared Iranian nuclear sites. This will certainly lead to some form of retaliation from Iran against Israel," Warren Patterson, commodity strategist at ING, said in a report. "It will only lead to further uncertainty and increase the risk that regional energy supplies are disrupted due to the escalation. While there are no reports of disruptions to oil supply, the market needs to start pricing in a larger risk premium," Patterson added.

 

Brent crude oil prices surged nearly 10% and hit an almost five-month high of $78.50 per barrel earlier in the day. The West Texas Intermediate crude oil also rose to a near-five-month high of $77.62 per barrel. At 1459 IST, the July WTI contract on NYMEX was up nearly 7% at $72.68 per barrel and the August Brent crude oil contract on the Intercontinental Exchange was at $74.20 per barrel, up 7% from the previous close. The June crude oil contract on the Multi Commodity Exchange was up over 7% at INR 6,264 per barrel.

 

"The war will certainly disrupt the supply from the region and if there is retaliation from Iran, prices will move in the northward direction," said Manoj Jain, director of Prithvi Finmart. A further escalation could lead to WTI prices rising to $80-$84 per barrel and Brent towards $88 per barrel, Jain said.

 

Ajay Kedia, director at Kedia Advisory, sees resistance for WTI crude at $77 per barrel and support at $65 per barrel. For Brent crude, Kedia said the next resistance is at $80 per barrel and support at $68.50 per barrel.

 

SUPPLY RISKS

Iran is one of the leading oil producers in the world, pumping around 3.3 million barrels per day of oil. Its oil exports are around 1.7 million barrels per day, according to ING. "In a scenario where we see further escalation, it's not too difficult to envisage a situation where Iranian oil supplies are disrupted," Patterson said.

 

There are also concerns about the war potentially spilling into neighbouring countries in a region which produces around a third of global oil. "... a wider Middle East (West Asia) conflict with impact on Saudi, Iraq, Kuwait and the UAE oil supplies can lead to a sharp spike in oil prices," Madhavi Arora, chief economist at Emkay Global Financial Services, said in a note.

 

Market participants are wary of a disruption to shipping on the Strait of Hormuz route, where around a third of global oil trade moves. "A significant disruption to these flows would be enough to push prices to $120/bbl. If disruptions persist towards the end of the year, we could see Brent trading to new record highs, surpassing the record high of close to $150/bbl in 2008," Patterson said.

 

If significant supply disruptions occur, governments would tap into their strategic petroleum reserves, Patterson said. "This would obviously have to be led by the US, which sits on more than 400 million barrels of crude oil in its SPR (Strategic Petroleum Reserve)."

 

Another solution could be the Organization of the Petroleum Exporting Countries tapping into its spare capacity of over 5 million barrels per day. Eight member nations of OPEC and allies have aggressively increased production in May and June and a similar hike of 411,000 barrels has been announced for July as well. "... while they (OPEC) are in the process of bringing supply back online, a disruption to Iranian supply may prompt them to bring this supply back at an even quicker pace," Patterson said.

 

GLUT OR DEFICIT?

The conflict in West Asia has put fundamentals of the oil market, such as concerns about demand and an expected supply glut, into the backseat for now. If Iranian oil exports are affected, that would be enough to push the oil market from a surplus over the second half of this year into a deficit, Patterson said.

 

The US Energy Information Administration had in its Short-Term Energy Outlook for June, projected global inventory builds in 2025 to be higher than its previous forecast due to a combination of lower oil demand in the Organisation for Economic Co-operation and Development and increased supply growth from both OPEC and allies and from countries outside of the cartel. EIA had projected the global oil inventory builds to average 800,000 barrels per day in 2025, 400,000 barrels per day higher than its earlier forecast. 

 

Market participants will closely monitor forecasts by the International Energy Agency and OPEC next week.

 

The increased uncertainty speaks in favour of a higher risk premium on the oil price, which is why it is unlikely to fall below $70 on a sustained basis for the time being, analysts at Commerzbank said.  End

 

US$1 = INR 86.08

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

 

Edited by Saji George Titus

 

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