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Oil Price Rally Continues Despite U.S. Inventory Build
Crude oil prices were on the climb again today, fueled by expectations of Israel’s retaliation against Iran after the latter showered it with missiles earlier in the week, sparking fears of a broader war in the Middle East.
The biggest worry is, of course, Israel targeting Iranian oil infrastructure, which analysts expect it to do. “The next turn in this retaliation spiral may very well involve oil – via the degrading of Iran’s oil capacity or Iran’s proxies attacking oil and gas shipping from the Persian Gulf,” according to Piper Sandler analysts, as quoted by CNBC.
Israeli media also reported that attacks on oil infrastructure were likely, citing government officials.
However, oil’s gains were moderated by the U.S. Energy Information Administration’s latest weekly inventory report, which showed a build in crude oil. At 3.9 million barrels, the build was considerable enough to make oil traders bearish despite events in the Middle East.
“Swelling U.S. inventories added evidence that the market is well supplied and can withstand any disruptions,” ANZ analysts wrote, as quoted by Reuters. That statement may be seen as a little questionable since the disruption of Libyan production drove prices higher earlier this year. Libya produces a third of what Iran does in crude oil. Disruption of Iranian production would quite likely have a palpable impact on international markets.
On the other hand, as Energy Aspects’ Amrita Sen pointed out to Reuters. “In theory, if we lost all Iranian production – which is not our base case – OPEC+ has enough spare capacity to make up for the shock,” Sen said. Indeed, analysts have calculated that Saudi Arabia and the UAE alone could more than offset a potential loss of Iran’s total production, which is around 3.2 million barrels daily. Of that, Iran exports about 1.8 million bpd.
Yet if Iran moves to block oil transport via the Strait of Hormuz, that would be a different story altogether. According to Rapidan Energy Group’s Bob McNally, a blockade on the chokepoint would send oil prices a lot higher.
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