Oil Touches New Six-Month Highs on Risk of Iran Attacking Israel
May ’24 WTI lost $1.25, or 1.6%, this week to finish at $85.66/Bbl. Both oil benchmarks rallied to their highest levels since October on Friday as Israel prepared for a possible attack from Iran. Brent surged as much as 3% to top $92/Bbl, while WTI surpassed $87/Bbl before paring gains.
Israel is bracing for a possible attack, either directly or via Iran’s proxies, employing drones and missiles on government targets within the next 48 hours, people familiar with the Western intelligence assessments said. Concurrently, the US is increasing its military presence in the area following Iran's threats of retaliation against Israel for an attack on an Iranian diplomatic compound in Syria last week.
The escalating risk of a widespread conflict in the Middle East lead to an increase in the geopolitical risk premium in crude prices. This comes on top of ongoing attacks on Russian downstream infrastructure and the Houthi attacks on Red Sea shipping.
AEGIS continues to maintain a bullish outlook on the curve as global demand appears to be resilient amid declining inventories and supply cuts by OPEC+. Headline risks due to geopolitical surprises could shock prices higher in the near term, but such scenarios are not included in our base case.
Furthermore, the IEA has revised its 2024 oil demand growth forecast downward, indicating a slowdown in expansion as the post-pandemic recovery slows down. The agency now projects growth at 1.2 MMBbl/d for 2024, a decrease from the earlier forecast of 1.3 MMBbl/d.
However, the IEA still forecasts inventory declines for much of the year if OPEC+ maintains its current supply cuts.
Meanwhile, OPEC on Thursday left its much higher forecasts unchanged, looking for growth of 2.2 MMBbl/d in 2024.