Middle East conflict a bane to cargo throughput
KUCHING: Potential further escalation of the ongoing Middle East conflict might be a boon to oil prices in the short-term but a bane to global cargo throughput recovery says analysts at AmInvestment Bank Bhd (AmInvestment Bank).
To recap, there have been talks about an increased possibility of escalation in the Middle East conflict as Iran commenced a retaliatory attack against Israel on April 14 over its alleged role in masterminding the airstrike on its consulate in Damascus where 12 Iranians perished.
Iran’s retaliatory attack was reported to involve the use of 170 drones and over 120 ballistic missiles that targeted the Nevatim and Ramon airbases located within the Negev desert.
Iran reported that seven missiles had struck the two airbases while Israeli reports stated that 99 per cent of these attacks were intercepted through the combined efforts of Israel, the US, the UK and Jordan.
Israeli also reported that the Nevatim and Ramon airbases were slightly damaged from the attack with one C-130 transport aircraft damaged.
In the aftermath, Iran announced that it will not intend to continue with further attacks as it deems the incident to be concluded based on Article 51 of the UN charter which states that member countries have the right to self-defence pursuant to an attack.
Meanwhile, Israel has announced that it will “exact a price” for the incident and has devised a military plan via its war cabinet.
However, whether or not any further retaliatory military actions will materialise is up for debate as the US has urged Israel for restraint and is currently attempting to coordinate a diplomatic response to prevent further escalation of the conflict in the region.
In a sector report, AmInvestment Bank guided that their scenario analysis from the current state of the Middle Eastern conflict presents a conservative upside to Brent crude oil prices and a laterthan-expected recovery in cargo throughput.
In their base-case scenario where there is minor or no further escalation of conflicts with the geopolitical environment remaining status quo, the analyst guided that they expect Brent crude oil prices in 2024 to average in at around US$85 per barrel while recovery of cargo throughput delayed until the third quarter of 2024 (3Q24).
“As it stands, global supply and demand levels have remained broadly within our expectations. For reference, this is slightly lower than EIA’s 2024 forecast which was recently raised from US$83 per barrel to US$88 per barrel on the back of OPEC+ production cuts,” said the analyst.
This was also in line with leading consultant, Rystad Energy’s forecast of US$85 per barrel.
In the worst-case scenario where is significant decline in Iranian oil production from escalation in the current status quo, AmInvestment Bank reckoned that China will likely be forced to return to formal oil markets to meet its current refinery demand and reroute the remaining ships via the Cape of
Good Hope in Africa.
This is likely to cause the Brent crude oil prices to trade upwards within the US$95 per barrel range while recovery of cargo throughput may be delayed until 1Q25.
That said, the analyst also highlighted that they do not discount the possibility of Brent crude oil prices trading higher within the US$95 to US$100 per barrel range but they believe this will largely be based on news and sentiments as this is not supported by fundamentals as the OPEC+ may increase production given significant amount of spare capacity to maintain its market share.
“For reference, Moody’s Analytics recently priced in a higher US$10 per barrel risk premium in response to the incident,” they added.
All in all, the analyst guided that even in their worst-case scenario they see potential for earnings upside for oil and gas players whilst port operators remain largely resilient with minor earnings impacts.
As it stands, global supply and demand levels have remained broadly within our expectations.
AmInvestment Bank