Analysts watch Middle East as oil prices remain volatile
After reaching its highest price since October, oil could rise even further and possibly breach the US$100 mark this year if tensions in the Middle East continue to escalate, analysts say.
West Texas Intermediate crude was trading for between US$85 and US$90 per barrel late last week before Iran's attack on Israel. After the attack, economists from Moody's Analytics Inc. said they expect the price to increase to between US$90 and US$95 per barrel. The analysts noted two possible scenarios from here on.
“The most likely is a measured and restrained response from Israel that de-escalates tensions. That would see the $10-per-barrel risk premium fade over the next few weeks,” the economists said in a note on Monday. “The second, and far more damaging, scenario would see an escalation in the conflict as Israel forcefully responds to the attack. Were that to occur, oil prices could jump to more than $100 per barrel.”
Bank of Nova Scotia analysts said the conflict's latest escalation has changed the rules of engagement in the region to become much more dangerous.
“The higher risk premium in the oil market will be here to stay for the foreseeable future,” they said in a note. “Our current 2024 and 2025 oil price forecast may prove to be too conservative and require upward revisions.”
Higher oil prices can have a double impact on the economy. They can turn out to be a boon for Canadian oil producers, primarily in Alberta, who went through a weak 2023. But they could also mean higher costs for consumers and indirectly influence the Bank of Canada's decision to cut interest rates.
Rising oil prices would make the “job of central banks” around the world “even harder,” Moody's report said. “Depending on how long prices stay elevated, rate hikes could even come back into play.”