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The National
30 minutes ago
- Business
- The National
Oil prices drop but on track to post a weekly gain fuelled by Israel-Iran air strikes
Oil prices fell on Friday but are on track to post a third consecutive weekly gain as air strikes between Israel and Opec member Iran stoked supply concerns in global markets. Brent, the benchmark for two thirds of the world's oil, was down 2.66 per cent at $76.75 a barrel at 10.33am UAE time. West Texas Intermediate, the gauge that tracks US crude, was trading 0.19 per cent lower at $75 a barrel. 'Oil prices have been the primary market expression of the dynamics of the current Israel-Iran war,' Edward Bell, acting group head of research and chief economist at Emirates NBD, said. 'Oil assets, whether production sites or export infrastructure or ships, have not been directly targeted in the exchange of fire between the two countries, but markets are nevertheless pricing in security of supply concerns.' Prices have been trading higher since the conflict broke out between Iran and Israel on June 13. Brent and WTI surged as much as 13 per cent in the first few hours of trading after the conflict began due to supply-related concerns. They settled around 8 per cent higher on the first day. Iran is the third-biggest producer of oil among the Opec group, with a total production of 3.3 million barrels per day. Concerns have also grown that the Strait of Hormuz, a key sea passage in the Arabian Gulf that helps oil tankers transport about 20 million barrels of oil and refined products every day, would be shut by Iran. US President Donald Trump said he will decide 'in the next two weeks' whether his country will join Israel's war on Iran, White House press secretary Karoline Leavitt said on Thursday. If the US joins the conflict, it is expected to further stoke tensions in the region and affect oil markets. 'Oil markets are accustomed to geopolitical risk and there is slack available in the market to absorb at least some of the anxiety over supply security,' Mr Bell said. He added that spare capacity within Opec+ is estimated at around 5 million barrels per day, 'though with the caveat that much of that capacity is reliant on access to the Strait of Hormuz to make it out to seaborne markets'. Spare capacity is the volume of production that can be brought on within 30 days and sustained for at least three months. Mr Bell also added there had been no material interruption to shipping in the Gulf region and oil continued to be exported from key market, including the UAE. "We're starting to hear impressive forecasts – as is always the case in escalation markets, with some pointing to a potential jump in crude prices to the $130–$150 per barrel range if Iran were to block oil and gas flows through the Strait of Hormuz, where 20 per cent of global supply transits," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. Citigroup analysts expect oil to spike to about $90 per barrel if the Strait of Hormuz is closed. However, a prolonged halt to shipping through the crucial waterway would be unlikely, Bloomberg reported, citing Citigroup analysts Anthony Yuen and Eric Lee.
Khaleej Times
14 hours ago
- Business
- Khaleej Times
Current oil spike does not match market fundamentals
The current spike in oil prices as a result of the Iran-Israeli conflict is to be viewed as a temporary phenomenon, as there is no change in oil market fundamentals, analysts say. 'Oil and gas are still flowing out from the Gulf. There are likely to be some consumers seeking to secure supplies in the short term to offset any potential interruption to supply and that is helping to push oil prices higher,' Edward Bell, Acting Chief Economist & Head of Research, Emirates NBD, told Khaleej Times. Oil prices have been the primary market expression of the dynamics of the current Israel-Iran conflict. Oil assets, whether production sites or export infrastructure or ships, have not been directly targeted in the exchange of fire between the two countries but markets are nevertheless pricing in security of supply concerns. In an immediate reaction to the news of the initial attacks on June 13 oil prices jumped sharply higher. Brent futures spiked to as high as USD 78.50/b and have since been responding to headlines, selling on market indications of a potential diplomatic solution and rising on anticipation that the conflict could deepen or spread. Volatility in oil prices has surged as markets price in a range of scenarios, all of which seemingly tilt toward the upside, such as attacks on oil infrastructure or the closure of the Strait of Hormuz. Options markets are positioned to the upside by the strongest degree since the start of the Russia-Ukraine war. Time spreads have also widened sharply into backwardation, reversing what had been an equivocal stance on the near-term outlook for oil market tightness over the rest of this year. 'At just shy of $5 per barrel in backwardation, the current 1-6 month time spread for Brent futures are above the 95th percentile of spreads dating back to 1990,' a research note from Emirates NBD said. Oil markets have also generally ignored downbeat economic data this week — a drop in US retail sales and a downgrade to growth from the Federal Reserve. Correlation with the US dollar has turned negative in the last several days after oil and the greenback had generally been moving in tandem for much of 2025. Oil and the dollar had been trading on a weak global growth narrative for the last few months thanks to the uncertainty caused by the tariffs introduced by the Trump administration. 'But now the geopolitical risk in the oil market is splitting the outlook for oil and the dollar, creating an even worse environment for central banks who will have to contend with slow growth and potentially even higher inflation,' Bell said. Geopolitical anxiety, if it does not result in actual supply disruption, tends to burn hot in oil markets but also burn fast, Bell said. 'Even the attacks on the Abqaiq oil processing facilities in 2019 saw a spike in oil from $60 per barrel to almost $70 per barrel in a single day but gains then faded over the subsequent weeks. Oil markets are accustomed to geopolitical risk and there is slack available in the market to absorb at least some of the anxiety over supply security,' he added. Spare capacity within OPEC+ is estimated at around five million barrels a day, though with the caveat that much of that capacity is reliant on access to the Strait of Hormuz to make it out to seaborne markets. For now there has been no material interruption to shipping in the Gulf region. 'Since June 13 there has been a steady stream of departures from UAE oil export terminals,' Bell noted. Higher volumes with lower oil prices was going to result in wider fiscal deficits or smaller surpluses for GCC governments. 'If oil prices hold to their current levels and OPEC+ sticks with its higher output targets that should mean a better picture for regional balances,' Bell said.
The National
24-04-2025
- Business
- The National
Why are oil prices so volatile and where are they heading?
Oil prices have been extremely volatile in recent weeks and could drop further if Opec+ decides to boost supply when it meets early next month, analysts say. Increased trade war concerns led by US tariffs and the possibility of a nuclear deal with Iran have led to fears about reduced demand and a supply glut. Prices fluctuated on Thursday after falling nearly 2 per cent in the previous session as investors weighed the prospect of an Opec+ supply boost against the fallout from trade tensions between the US and China, and Iran talks. Brent, the benchmark for two thirds of the world's oil, was trading 0.51 per cent higher at $66.46 a barrel at 10.54am UAE time, while West Texas Intermediate, the gauge that tracks US crude, was up 0.59 per cent at $62.64 per barrel. 'Oil prices weakened overnight as discord bubbled to the surface within Opec+,' said Edward Bell, acting group head of research and chief economist at Emirates NBD. This came after Kazakhstan's Energy Minister Erlan Akkenzhenov said the country couldn't make substantial cuts to its output and would 'prioritise national interests', a Reuters report said. Other Opec+ members are also reportedly considering whether to accelerate output increases in June, it said. Oil's quiet ascent since its tariff-induced trough on April 9 'has been stymied' by renewed concerns that Kazakhstan has defied Opec+ by prioritising national production targets over group quota levels, Japanese bank MUFG said on Thursday. 'This growing internal discord within Opec+ comes as oil bulls have been relishing on the recent risk-on mood reflecting easing Fed independence apprehensions, softer US rhetoric on China tariffs and a clearing of short positions in the midst of the first quarter's earnings season,' it said. Earlier this month, the producers group decided to add 411,000 barrels per day to the market in May, more than the 138,000 bpd initially planned, on expectations of a rise in demand. The group will hold a meeting on May 5 to decide its output plans for June. 'Brent's upside should remain capped as long as global trade tensions keep feeding demand-side fears,' Han Tan, chief market analyst at Exinity Group, told The National. 'Oil benchmarks could also sink to fresh four-year lows below $60 per barrel if Opec+ proceeds with yet another bumper-sized production hike in June.' The consistent uncertainty surrounding US-China trade tensions over tariffs has been a key driver for oil price volatility. On Wednesday, The Wall Street Journal reported that the White House was considering slashing steep tariffs on Chinese imports – in some cases by more than half – in a bid to de-escalate tensions with Beijing. US President Donald Trump is also reportedly considering tariff exemptions on car part imports from China, which could support oil prices. However, the outlook remains bearish for now, analysts said. 'Oil prices face downward pressure as US talks with Iran, US tariffs, rising Opec+ supply projections and lowered oil demand estimates from the International Energy Agency and Opec create the perfect storm for low investor confidence,' Rystad Energy said on Wednesday. Opec this month slashed its oil demand forecast for 2025 to 1.3 million barrels per day, mainly due to tariff uncertainty. The prolonged US-China trade war could cut China's oil demand growth in half this year to 90,000 barrels per day from 180,000 bpd, according to Rystad. China is the world's second-largest economy and a leading crude importer. The progress in US and Iran nuclear talks are also affecting oil markets. Iran this week said a nuclear deal was possible 'in the short term' following two rounds of indirect negotiations between the US and Tehran. If a deal is reached between the two countries, it could lead to a boost in supply from Iran on possible sanctions relief. Meanwhile, the US Department of the Interior on Wednesday said it will issue emergency permits to accelerate the development of domestic energy resources including crude oil and critical minerals. 'We are cutting through unnecessary delays to fast-track the development of American energy and critical minerals – resources that are essential to our economy, our military readiness and our global competitiveness,' said Secretary of the Interior Doug Burgum. 'By reducing a multi-year permitting process down to just 28 days, the department will lead with urgency, resolve and a clear focus on strengthening the nation's energy independence.' Prolonged low oil prices could also hit investment in the energy sector, according to a report from Wood Mackenzie. 'If operators and the supply chain anticipate a period of prolonged low prices, it would send shockwaves through the industry," said Fraser McKay, the company's head of upstream analysis. 'This near-term uncertainty becomes an investment killer, precisely when the focus should be on potential long-term demand growth.'
Zawya
17-04-2025
- Business
- Zawya
With oil around $66, what are Saudi Arabia's options?
With global oil prices down to a four-year low last week, Saudi Arabia--which depends heavily on its oil revenues to balance its budget and to finance its massive economic transformation plan--could be forced to tighten fiscal policy further or seek recourse in the debt market; alternatively, it may even look to raise new taxes. The prospect of a US–China trade war and its gloomy consequences on the global economy, in addition to the unexpected output increase by OPEC+ members in the first weeks of April, have driven oil prices down. Additionally, the IEA has lowered oil demand growth forecasts substantially for 2025 and 2026. Brent, the key benchmark for Middle East producers, and the US West Texas Intermediate crude have both lost around $10 since the beginning of the month. Brent has since recovered slightly and is trading around $66 per barrel on Thursday. Goldman Sachs now expects Brent to average $63 for the remainder of 2025 while BMI has forecast the benchmark at $68. Also weighing on the government's finances is state-backed energy producer Saudi Arabian Oil Company's guidance for lower dividend payment of about $85 billion in 2025 compared with $124 billion last year. Saudi Arabia needs oil at over $90 per barrel to balance its books, according to the IMF. While the government already runs both current and fiscal account deficits, Fitch Ratings expects the fiscal deficit to widen to 4.1% of GDP in 2025 based on Brent at an average $70 and the lower dividend from Aramco. All else being equal, 'a $10 per barrel drop in the oil price would add around 3 percentage points to the budget deficit', said Paul Gamble, Senior Director, Sovereigns, at Fitch Ratings. Edward Bell, Acting Group Head of Research and Chief Economist at Dubai-based Emirates NBD, said: 'Prior to the sell-off that started in April we had already been projecting a fiscal deficit for Saudi Arabia in 2025 and with oil prices set to hold at lower levels for the rest of this year we now expect that the fiscal deficit will widen.' Non-oil growth Much of the growth in the kingdom was expected to come from the non-oil sector this year, which rose 4.3% in 2024 and outperformed overall GDP growth of 1.3%. While Saudi finance minister Mohammed Al Jadaan has reiterated that the kingdom's focus is now on raising non-oil GDP, any fiscal policy measure to curb overall spending could rein back growth in the non-oil sector too. 'Non-oil growth has remained robust so far this year and there still looks to be a solid pipeline of new orders in the domestic market for 2025. Government spending may slow later on in the year and into 2026, edging the overall economy's pace of growth lower,' said Bell. The Saudi sovereign wealth fund, the Public Investment Fund, which is spearheading the country's economic transformation programme, is reported to have scaled back or recalibrated some of the loftier mega projects. Companies that have been contracted to build NEOM, the Red Sea development that is the keystone of Crown Prince Mohammed bin Salman's Vision 2030, are said to have reduced budgets and laid off personnel as part of the recalibration. However, arenas and stadia that are expected to host prestigious international sports events like the FIFA World Cup and Asian Winter Games have been moved to the top of the queue. 'Many projects that Saudi Arabia has committed to have externally imposed timelines, such as the Asia Winter Games in 2029; Expo 2030, to be held in Riyadh; or the [FIFA] World Cup, to be held in 2034. Projects related to these events will include logistics, event venues, hospitality and infrastructure, and we would expect that spending to be maintained. Other projects may face some lengthening of timelines or scaling back of the scale of initial delivery,' said Bell. Debt market Saudi Arabia, which has announced plans to raise $37 billion this year across domestic and global markets to finance the budget shortfall, might step up borrowing under the low oil price scenario. It helps that its sovereign rating was upgraded to Aa3 from A1 by Moody's Investors Services last November based on the positive momentum in the economic diversification programme. The upgrade, however, came with a caveat. 'A large decline in oil prices or production could intensify the trade-off between progress in economic diversification and fiscal prudence, potentially leading to a weaker sovereign balance sheet,' Moody's noted. Emirates NBD's Bell said Saudi Arabia has strong access to financial markets and 'we would expect them to continue to raise both local and foreign currency debt to help maintain spending commitments. Overall public debt to GDP levels are relatively low compared with economies of similar size, with the Ministry of Finance estimating debt at about 30% of GDP in 2024'. According to Hekmat El Matbouly, Senior Economist at Egyptian investment bank CI Capital, the controlled public debt will enable continued borrowing, rising to 35% of GDP in 2025 versus 30% last year. 'A sustained weakening USD poses an upside to borrowing activities (by easing pressure on the peg from higher for longer borrowing costs).' According to LSEG data, the kingdom has raised $14.1 billion from two eurobond issuances year-to-date. New taxes James Swanston of the London-based consultancy Capital Economics thinks 'cuts to capital spending will be the first port of call' for the Saudis. 'But there may also be fresh efforts to raise non-oil revenues and, possibly, to push through new taxes, such as property or personal income taxes,' he said in a recent note. Gamble agreed that new taxes are a possibility. 'Saudi Arabia has broadened its range of revenue raising tools in recent years, but introducing new taxes anywhere takes preparation. Another option for the authorities is to change the rates of existing taxes,' he added. With no easy solution at hand, Saudi Arabia must navigate a complex economic landscape, balancing immediate fiscal needs with long-term strategic goals. The kingdom's ability to adapt to these challenges will be crucial in maintaining economic stability and achieving its Vision 2030 objectives. (Reporting by Brinda Darasha; editing by Seban Scaria)
Khaleej Times
11-04-2025
- Business
- Khaleej Times
Oil markets face downside volatility on tariffs, increased supply
A double whammy of demand threats from global tariff war and increased supply has opened up the way for considerable downside volatility in oil markets, analysts say. 'Premiums for downside protection have spiked to their widest levels since the pandemic. Time spreads has also shifted considerably. The 1-6 month spread in Brent futures has fallen from more than a $3 per barrel backwardation as the start of April to barely more than $1 per barrel now,' Edward Bell, acting group head of research and chief economist, Emirates NBD, wrote in a note. Emirates NBD has downgraded its Brent oil price forecast to $68 per barrel, down from $73 per barrel previously while for WTI it now expects prices at an average of $65 per barrel, down from $71 per barrel previously. Both the WTI and Brent curves are still someways from moving into contango but if demand fades substantially this year as a result of the trade dispute then curves are likely to fall out of the backwardation they have held for several years. 'Prices have recovered and downside premiums have narrowed following the announcement of a 90-day pause on widespread tariffs but the risk of further downside moves is high,' Bell said. Oil markets are in flux in the wake of US President Donald Trump's whipsaw announcements on tariffs. Prices for Brent and WTI futures have tumbled since the start of April thanks to anxiety that a damaging global trade war will spark a major global slowdown and vastly reduce oil demand growth. Brent prices briefly moved below $60 per barrel on April 9, their lowest level since Q1 2021, in response to President Trump announcing more than 100% tariffs on imports from China. Prices have since recovered as the US has delayed tariffs on dozens of countries for 90 days though it has maintained high levies on Chinese goods. At the same time that the US unveiled a substantial shift in its trading posture relative to the rest of the world, Opec+ announced on April 3 that it would bring forward some of its planned production increases. In a statement a day after the initial US reciprocal tariff announcement, those Opec+ countries that are contributing voluntary additional cuts said they will deliver three months' worth of production increases in May to enforce discipline with production targets or in their words providing over-producers 'an opportunity…to accelerate their compensation.' The Several Opec+ national oil companies have also cut official selling prices in the past week, 'which may be an effort to preserve market share and could be an early warning of a price war', Bell said. ' market share battle is not a core assumption for oil markets this year but a disorderly breakdown of Opec+ is a real risk that could open much more downside for prices, he added. 'Our forecast for oil prices was that they would slide in 2025 on average relative to 2024 as we expected modest demand growth to fail to absorb supply additions from Opec+ as well as producers like the US, Canada and Guyana. There are more meaningful downside risks to demand this year as slowdown or recession fears build and we are now expect a steeper trajectory for oil prices on the way down.' Bell said. The direct effect of tariffs on many of the GCC economies is relatively limited as at 10 per cent the rate is lower compared with the rate threatened and now paused for other US trading partners and overall exposure to the US in terms of export flows is largely dominated by oil and natural gas which are currently exempt from tariffs. 'However, our expectation of a lower oil price pathway this year means that fiscal and external positions across the GCC will be weaker,' Bell said.
