The recent attack by Iran on Israel had minimal impact on oil futures, as traders believe the conflict will likely stay contained. As Israel considers its response, here’s what market watchers comment on regarding the future outlook.
“We estimate that oil prices already reflect a $5-to-$10-a-barrel risk premium from downside risks to supply,” before the weekend attacks by Iran, Goldman Group Sachs Inc. analysts including Daan Struyven said in a note. “The potential Israeli response to Iran’s attack is highly uncertain and will likely determine the extent of threat to regional oil supply.”
Analysts note that Iranian crude production has surged by over 20% in the last two years, reaching 3.4 million barrels per day, approximately 3.3% of global supply. They suggest that if the market begins to factor in a greater likelihood of decreased Iranian supply, this can lead to an increase in the geopolitical risk premium.
“The market had already priced in some form of attack, while limited damage and no loss of life means the potential for a more measured response from Israel,” ING Group NV strategists Warren Patterson and Ewa Manthey said in a note. “How Israel responds is now the key uncertainty.” “There were lots of buying on geopolitical tensions last week, but as the story developed, what didn’t happen was a real escalating of tensions.”
