Mr. Blas at Bloomberg, April 14:
Iran's Attack on Israel Upsets OPEC+ Search for Goldilocks Price
Recently, I asked the head of a state-owned oil company in the Middle East what price OPEC+ is aiming for. Laughing, he replied: $99.99 a barrel, and not a single cent higher. Even following Iran’s missile attack on Israel, there’s a good chance the cartel can keep crude prices below the triple-digit barrier.
My interlocutor was intentionally flippant, but directionally, his assessment sounds about right. Yet, on any given day, achieving oil prices that are neither too hot nor too cold is extremely difficult. The geopolitics of the Middle East only confuses the calculus and makes it almost impossible to reach the fabled goldilocks level.The situation is fluid, and for the oil market, everything depends now on how Israel’s response and the chance of a cycle of escalation. Still, we can draw a few tentative conclusions:
1) From a purely physical standpoint, nothing has changed in the world of oil. Middle Eastern crude is flowing into the global economy unimpeded, and the Strait of Hormuz, the world’s most important energy chokepoint, remains open to shipping. Put simply: there’s no oil shortage.
2) The risk of a future disruption has increased. It would be naïve to say the Middle East looks today exactly as it did last week; a lot did change. I don’t think it was a purely symbolic attack. Even though telegraphed well in advance, Iran launched about 170 drones, 30 cruise missiles and 120 ballistic missiles, with the clear aim of overwhelming Israel’s defences. The options market, via deep out-of-the-money call contracts, should reflect the higher risks.
3) Iran appears to have aimed for an escalation to-deescalate, rather than opening the first chapter of a regional war. Even well before the drones and missiles reached Israel, Tehran indicated the attack was a one-off “legitimate defense” after the Israeli bombing of its embassy in Syria: “The matter can be deemed concluded.” If Israel considers that its response, bringing America and several Arab nations alongside to neutralize almost all the incoming bombs, was akin to a strategic victory, then the region returns to its precarious status quo. If so, headline oil prices don’t need to rally. Instead, the risk will be reflected better via the options market....
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