As oil traders prepare to open the market after the sudden outbreak of war in Israel, one key question is: Will the conflict spread to the rest of the region? Edition Bloomberg analyzed the statements of experts.
Crude oil traders do not expect a massive jump in prices as there is no immediate threat to supply. But all attention is focused on Iran, a major oil producer and key backer of the Hamas group that attacked Israel.
"The oil disruption scenario," said Bob McNally, president of Rapidan Energy Group and a former White House official, "would involve a conflict that spilled over into Iran, but right now that seems unlikely."
But the threat is intensifying just as global crude inventories have dwindled following months of sharp output cuts by Saudi Arabia and Russia, which briefly pushed Brent futures to nearly $100 a barrel last month.
"This is unlikely to affect oil supply in the short term," said hedge fund trader Pierre Andurand, founder of Andurand Capital Management LLP. "But it could ultimately affect supply and prices."
No one expects Saudi Arabia, which is negotiating with Washington to normalize relations with Israel, to turn off the oil taps in solidarity with the Palestinians right now. But the conflict could hamper any additional oil supplies from Saudi Arabia that might emerge.
The energy minister of the United Arab Emirates, a key OPEC member, said on Sunday that the conflict would not affect the group's decision-making.
"We do not engage in politics; we are governed by the principle of supply and demand and we do not take into account what each country has done,” Energy Minister Suhail Al Mazruei told reporters in Riyadh.
For its part, Iran, also an OPEC member, expressed support for the Palestinian attack. If Israel responds to any direct provocation by striking Iranian infrastructure, "crude prices will go up instantly," McNally said.
Iranian oil became even more important to the market as supplies rose to a five-year high. This happened with Washington's tacit support as the two sides engaged in fragile diplomacy to restore curbs on Tehran's nuclear program.
"The crude oil market is very tight," said Gary Ross, an oil consultant and hedge fund manager at Black Gold Investors LLC.
Price fluctuations and volatility deepening anxiety in the market and increasing the risk of rising interest rates.
On the other hand, cutting production to about 9 million barrels per day has given Saudi Arabia a large buffer in spare production that could be used in case the current crisis leads to a supply disruption. According to Bloomberg estimates, the kingdom has about 3 million barrels of oil per day in reserve, and the neighboring United Arab Emirates another 1 million.
This large safety cushion is another reason why traders do not expect immediate price increases when the markets open.
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