Amrita Sen of Energy Aspects discusses the outlook for the oil market in light of geopolitical factors such as the Israel-Hamas war and tensions in the Red Sea.
Should oil prices be higher given the news flow we’re seeing around the Middle East right now what’s going on I mean if you look back historically a few um years ago even we probably should be at $120 so yeah I think your question is right that why are we not higher couple
Of things I think since the Russian invasion of Ukraine the markets kind of realized that anything to do with trade flow shifts which is what the Red Sea situation is that tankers are still managing to go but now they have to go around the Cape of Good Hope that’s
Actually not lost supplies that’s just a massive disruption to trade flows and that’s why it’s being reflected in Freight it’s being reflected in refining margins because refineries are having to pay up for it product cracks but also physical differentials if you look at the physical Market in the North Sea
Extremely backdated like the Brent this physical Brent curve so you are seeing it manifest it’s just not in the future price that you and I look at and that’s partly driven by the fact that people have like speculators or investors uh if you want to call them that that uh they
Haven’t made money trading oil for the last maybe year and a half I would say so people are very very cautious of going long and ultimately if you don’t have people who are long prices are just not going to go up you know it’s fascinating because of course against
The backdrop of the Israel Hamas War we have these renewed tensions in the Red Sea I mentioned this strike in Jordan President Biden vowing to retaliate now as well so many other geopolitical headlines influencing the market but from a pricing perspective of the crew products that you’re tracking right now
What is most at risk in your veh I would say regionally and we need to look at this regionally regionally it’s the Mediterranean and North Sea because that’s where the flows from the Middle East to there are most disrupted about a million barrels per day give or take a
Flow from Middle East to Europe um from Europe to or rather from the Atlantic Basin uh to uh Asia that’s about 600,000 barrels per day that’s disrupted because Russia is continuing to flow through the red SE now if they decide that this is too much of a risk for them and they go
Around the Cape of Good Hope then that means Asian prices Dubai prices will go up a lot so that hasn’t happened yet and the biggest impact has really been on NAFTA markets and on jet markets because a enormous 1 and a half million tons of NAFTA goes from Europe to Asia that’s
That has to go around and jets the other way around Middle East to uh Europe and you know summer jet this is the weak period for jet demand summer jet is kind of ahead of us and we think these attacks going to go on for months so we
Could see some really elevated prices into the summer