Iran’s role on the oil market
Iran is a key player in the oil producers market and one of the members of OPEC. This country produces almost 4 million barrels of raw material per day, or about 4%. total world supply. This is a lot and enough to greatly destabilize the market and significantly increase prices in the short and medium term – writes CNBC.
Oil futures responded to the increasingly tense situation in the Middle East, increasing by about 5% on Thursday and continuing to move in the same direction the next day. Investors are primarily concerned that Israel may target Iran’s oil infrastructure.
Oil price forecast in 2025
The aforementioned Goldman estimates that If Iranian production drops for a long time by 1 million barrels of oil per day, the maximum price of the raw material next year may drop by as much as $20. per barrel above today. This scenario assumes that OPEC will not respond to this problem with a sufficiently large increase in the supply of raw materials.
A sudden reduction in oil supply would be beneficial to other cartel members because it would significantly increase production profitability and sales revenues. However, the situation is more complicated because producers outside the cartel are just waiting to grab a piece of the demand pie. Among the countries rapidly increasing production is, for example, Canada. OPEC must therefore decide whether it will decide on a total supply reduction, which may, but does not have to, have a positive impact on the prices of the raw material. In a scenario in which other OPEC members decide to make up for some of the supply losses, the price of oil should, according to the bank, increase less, below $10. per barrel.
Oil prices and the acceleration of economies
An increase in oil prices is highly likely next year even without Iran’s “contribution.” The reason is the phase of the business cycle we are entering. The global economy and industry should gain great momentum in the next twelve months, which, as we know, will increase the demand for energy carriers. This will certainly be helped by the easing of monetary policy by the largest central banks, including a cycle of rate cuts and the likely end of quantitative tightening (QT) programs.
Another factor supporting the economy will be stimulus packages. The main consumer of crude oil is China, which, however, is in a crisis that may even cause a recession in the coming quarters. However, the Chinese economy may catch another breath. The Chinese authorities have already reacted and a few days ago announced the introduction of a wide-ranging package to stimulate the economy. It includes, for example, a reduction in short-term interest rates, a financial package supporting the Chinese stock exchange, and a reduction in the minimum level of required reserves for banks, which should result in stimulating lending.
Critical transport through the Strait of Hormuz
The escalation of the military conflict between Israel and Iran may also limit the transport of oil through the Strait of Hormuz. Up to one fifth of the entire raw material production is transported using it. It is therefore strategically crucial for the global market.
If a full-scale war breaks out, the price of Brent crude oil may exceed $100. per barrel, and temporarily even approach the level of $150. – BMI Fitch Solutotions forecasts.