Crude oil markets have been jittery lately as additional OPEC+ output counters expectations of continued strong demand and coincides with concerns about the resurgence of Covid-19 in key markets. Yet some believe oil could still hit $80 a barrel.
Analysts believe strong demand during the second half of the year will prevail, writes Dan Eberhart from Canary LLC in an article for Forbes. In addition to these demand expectations, there is still substantial uncertainty around the U.S.-Iran nuclear deal, especially now, in the wake of a tanker attack that Washington, along with London, blamed on Tehran.
Israeli-managed Mercer Street was attacked with drones at the end of last week off the coast of Oman, with two crew members killed.
"Upon review of the available information, we are confident that Iran conducted this attack, which killed two innocent people, using one-way explosive UAVs, a lethal capability it is increasingly employing throughout the region," said U.S. Secretary of State Antony Blinken.
Iran denied any involvement in the attack, but the event would almost certainly have an adverse effect on nuclear talks, which have been stalling for a while. Last week, the U.S. warned Iran's new government that it will not be offering better terms, according to an Axios report, with Secretary Blinken separately saying that the talks could not drag on forever.
So, with the prospect of Iranian oil returning to official markets becoming more distant, that's a bit less downward pressure on prices. Traders had factored in the possibility of additional barrels coming from Iran, Canary's Eberhart noted, and now that the chance of that happening waning, prices have higher to go. Meanwhile, expectations of further draws in U.S. inventories added to upward pressure on prices, per a Reuters report from earlier today.
"Delta related concerns will likely keep oil markets volatile over the coming weeks but at the same time we also see flying activity across Europe and the U.S. continue to grind higher, supporting oil demand," UBS analyst Giovanni Staunovo said.
By Irina Slav for Oilprice.com
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The strongest bullish factor underpinning oil prices and global oil demand is a global economy growing this year at 6.3% or more than double its rate of growth in 2019 before the pandemic.
Another bullish factor is the escalating tension between the United States and Israel on the one hand and Iran on the other in the aftermath of the attack on the Israeli-owned oil tanker Mercer Street. Both the United States and Israel have promised retaliation with the US Secretary of State Anthony Blinken warning Iran that an “appropriate response is coming”. Iran has also promised a devastating military response if attacked.
Iran has a strong trump card in its hands. By using its newly-opened Goreh-Jask oil pipeline which bypasses the Strait of Hormuz, , it could block or threaten to block the Strait without hindering its own oil exports.
A lifting of US sanctions against Iran isn’t going to see the light of day soon or ever because the positions of Iran and the United States on the nuclear deal are irreconcilable.
Moreover, the global economy is so robust that it can easily overwhelm any Delta related concerns.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London