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Middle East Tensions Might Push Crude Oil Price $100/bbl

KUALA LUMPUR: Crude oil prices may surge towards or surpass the $100 per barrel mark should tensions escalate further in the Middle East and cause disruption to Iran’s oil production.

Some OPEC members, including Saudi Arabia, have adhered closely to production quotas, leaving room for potential production increases in the second half of the year to stabilise energy prices.

United Overseas Bank Ltd (UOB), in a commodities strategy report released on Monday, said the significant uncertainty surrounding crude oil price trends after Iran’s drone and missile assault on Israel.

Although Brent, the worldwide standard for crude oil, commenced Monday morning in Asia with minimal change, hovering slightly above $90 per barrel, the situation remains precarious.

The research firm said widespread diplomatic efforts from the United States (US), European Union (EU) and Arab states to de-escalate tensions between Israel and Iran have helped contain the fallout.

However, the firm said significant risk remains due to the uncertain reaction from both countries.

UOB highlighted that present indicators in the energy market, such as net non-commercial crude oil positions, three-month implied volatility, and freight rates, indicate a relatively limited risk compared to previous disruptions.

This is evidenced by the fact that Brent crude oil futures’ backwardation remains significantly distant from the levels observed in early 2022 during Russia’s invasion of Ukraine.

The research firm stressed the importance of the response of the Organization of the Petroleum Exporting Countries (OPEC), highlighting it as a crucial factor to monitor.

This is particularly significant as Iran contributes approximately four million barrels per day of crude oil production, accounting for 45 per cent of Saudi Arabia’s output.

UOB added that if the situation deteriorates and poses a risk to Iran’s crude oil output, crude oil prices are likely to surge again towards the $100 per barrel mark.

However, UOB also acknowledged that some OPEC members, including Saudi Arabia, have adhered closely to production quotas, leaving room for potential production increases in the second half of the year to stabilise energy prices.

UOB maintains its forecast for Brent crude to reach US$90 per barrel by the fourth quarter of 2024 but acknowledges the volatility of the situation, especially considering the possibility of increased oil production from Saudi Arabia and OPEC+ in response to market dynamics.

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