Is the world too optimistic to believe that oil supply will be surplus, while a new shock in the Middle East could push oil prices up even more?
World oil prices have maintained their upward momentum for more than a week in a row as tensions in the Middle East show no signs of cooling down. Although many organizations predicted that the market would soon be oversupplied after ship traffic through the Strait of Hormuz recovered thanks to the ceasefire agreement between the US and Iran, the reality was completely different. The ceasefire agreement quickly lapsed, causing geopolitical risks to return and putting pressure on global supply.
What is worth noting is that not only is the futures market increasing in price, but the physical oil market is also signaling that supply is becoming more scarce. This is a factor that traders consider to have much more weight than theoretical forecasts of oversupply, because it directly reflects actual delivery demand.
The Strait of Hormuz continues to be the focus of the world energy market. This transport route dResponsible for about 20 percent of global oil consumption. Any potential disruption could cause transportation costs, insurance premiums and oil prices to increase sharply in a short period of time.
Meanwhile, many previous forecasts suggested that increased output from OPEC+, the US, Brazil, Guyana and Canada would create a surplus of oil in the second half of the year. However, these forecasts are built on the assumption that the geopolitical situation will stabilize. When the conflict drags on, the market must immediately readjust expectations.
Comparison table between forecast and actual developments
Content Previous forecast Current developments
Strait of Hormuz Operating normally, risks reduced The risk of disruption still exists
Oil prices May decrease due to oversupply Continue to increase for more than a week
Abundant material supply Signals scarcity
Market sentiment Optimistic Cautious and defensive
Another signal monitored by analysts is the price difference between oil futures. When spot oil rises faster than futures oil, it usually reflects strong physical demand and buyers are willing to pay a premium to take delivery now rather than wait in the future.
If tensions continue, oil prices may be affected by many factors at the same time, such as the risk of cockroachestransportation, rising marine insurance costs, falling inventories and speculative activities in financial markets.
Table of factors supporting oil prices
Factor Influence level
Middle East tensions Very high
Risk of disruption to the Strait of Hormuz Very high
The physical oil market is scarce High
Transportation insurance costs increase Moderate to high
Expectation of demand recovery Moderate
In the short term, developments in the Middle East will likely still be the deciding factor in oil price trends. If there are any more incidents related to shipping across the Strait of Hormuz or energy facilities in the region, the global oil market could continue to face new price increases.
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