Oil price uncertain amid Iran-US conflict

Kay Cashman

Petroleum News

On Jan. 3 Alaska North Slope crude rose $2.03 to $70.42 a barrel, the first time it hit $70 a barrel since May 22, 2019, per the Alaska Department of Revenue.

Oil surged in reaction to tensions in the Middle East, specifically Iran’s threat to retaliate for the U.S. airstrike on Jan. 2 that killed the Islamic Republic’s top general, Qassem Soleimani, leader of the Revolutionary Guards’ Quds force

According to a Jan. 2 CNN report that cited an unidentified U.S. defense official, the U.S. intends to send “thousands of additional” troops to the Middle East due to rising regional tensions.

The airstrike came amid tensions with the United States after a New Year’s Eve assault by Iran-backed militias on the U.S. Embassy in Baghdad. The two-day embassy attack that ended Jan. 1 resulted in President Donald Trump deploying approximately 750 U.S. soldiers to the Middle East.

The Jan. 2 U.S. airstrike followed a strong fourth quarter for oil, which saw OPEC and associated companies announce deeper production cuts than expected in December, and after drone strikes in September on Saudi Arabia’s Abqaiq and Khurais oil facilities rattled international markets.

So, how will oil prices be impacted in coming weeks?

“It’s been a knee jerk reaction because everybody” is wondering how is Iran going to retaliate, and “I think that’s why you’ve seen prices jump 3, 4%,” Energy Aspects’ Amrita Sen said Jan. 3 on CNBC’s Worldwide Exchange.

“We’ve seen what Iran can do in Saudi Arabia, does it do similar stuff again, is there another attack on Saudi facilities.”

Sen said retaliation will likely “take some time,” and that in the meantime oil might lose some of its gains.

“This market is extremely complacent. It never takes into account just how tight the market it ... the general view in the market has been ‘oh the world is awash in oil’ however incorrect it is, and unless an actual outage lasts, I’m not sure we’re going to sustain this rally just yet,” she said.

The U.S. Energy Information Administration said Jan. 3 that inventories decreased by 11.5 million barrels for the week ending Dec. 27, as opposed to an expected decline of 5.5 million barrels.

Goldman Sachs and UBS market analysts do not think oil prices will continue to rally above $70 a barrel because of strong production from outside the Middle East.

Other market analysts and Middle East observers say that if Iran’s retaliation targets oil production in Saudi Arabia or Iraq, which are OPEC’s two largest producers, prices could move higher.