The recent geopolitical flare-up in the Middle East, which began with an alleged Israeli strike in Damascus, Syria on April 1, resulted in the death of 13 people, including two Iranian generals. This was followed by an unprecedented retaliatory attack by Iran on Israeli soil on April 13, which was largely intercepted by Israeli Defense Forces with the help of allies. In response, Israel launched its own counterattack on Iran’s central province of Isfahan, where the country’s nuclear program is located. However, despite the tension, the region and the oil market have seen a relative calm in recent days.
The Israeli action in Isfahan appears to have been limited in scope and designed to send a warning rather than cause significant damage. Satellite imagery showed minimal material damage, and there were no reported casualties on either side. As a result, global crude oil prices have remained relatively stable, with Brent crude sliding to around $87.20 per barrel on Friday, down from an intraday high of $92 per barrel. While still near the highest levels seen since October 2023, the softening of prices may seem out of sync with the severity of the recent escalation.
Despite the potential for a major escalation in hostilities, there have been no disruptions to oil supply in the Middle East. Non-OPEC supply from countries like the U.S., Canada, Brazil, Norway, and Guyana remains strong and is capable of meeting demand growth in 2024. Additionally, OPEC+ supply cuts and spare capacity in the supply system, particularly in Saudi Arabia, provide a buffer against supply disruptions. The global demand picture remains uncertain, with potential impacts on China’s crude imports and demand uncertainties in other regions.
Looking ahead, the oil market is likely to see continued stability in 2024, barring a major escalation in hostilities or a significant increase in demand. Brent crude prices are expected to remain supported near $85 per barrel in the short term, with a resistance level around $95 per barrel. The market’s current range is influenced by a tight market for heavy sour crude due to OPEC+ production cuts and a marginal surplus in light sweet crude due to elevated U.S. production levels.
Overall, while tensions in the Middle East have caused concern in the oil market, the recent events have not led to any major disruptions in supply. With strong non-OPEC supply, spare capacity, and uncertain global demand, the market is likely to continue in its current range in the absence of significant developments. As such, the global crude oil prices are expected to remain relatively stable in the near term.
