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Low oil prices despite the crisis in the Middle East

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Today the situation is very different from that of 2022

Χαμηλοι τιμéς του πετρελα Ιου παρΑ την κρΙση στη ΜΕση Ανατολor

The International Energy Agency estimates that oil demand will increase this year by just 1.2 million barrels per day. [REUTERS]

Two years ago, when Russia attacked Ukraine, the price of oil shot up 30% and Brent reached $120 a barrel. However, the black gold market does not seem to be affected by what is happening in the Middle East. Israel's new war against Hamas has been going on for four months already and yet the price of oil is at $80 a barrel, still below pre-war levels. The seemingly incomprehensible composure of investors betrays market expectations that demand will remain relatively low, supply will be plentiful, and Washington's sanctions against Iran will be eased. All that could change though.

Today the situation is very different from that of 2022, when the recovery of economies from the pandemic recession had driven demand to high levels and supply was limited. Prices were already close to $90 a barrel before the Russian invasion of Ukraine. The global economy had seen growth of 6% in the year before, in 2021, and OPEC together with Russia had implemented their decisions to cut production by almost 10 million barrels per day. The prospect of another 5 million barrels per day of Russian crude disappearing from the market was expected to send prices soaring.

Today, on the contrary, there is a surplus in the world oil market, while according to the World Bank the world economy will grow by only 2.4% this year. The International Energy Agency (IEA) estimates that demand for oil will increase by just 1.2 million barrels per day, about half of the increase seen last year. In the meantime, the IEA estimates that supply will increase globally by 1.5 million barrels per day thanks to non-OPEC producing countries and mainly the US. Meanwhile, attacks by Houthi rebels in the Red Sea have made crossing the Suez Canal, the fastest route to Europe, dangerous. Tankers circumnavigate Africa and arrive at their destination two weeks late. They thus consume more oil either because the journey is much longer, or because they develop speed to limit lost time. Africa's oil spill requires the consumption of an additional 200,000 barrels of oil a day, according to experts who spoke to Reuters. So demand is increasing for this year to 1.4 million barrels per day.

Market estimates are that demand will remain low, supply will be plentiful, and sanctions will ease. of the US against Iran.

Furthermore, the IEA may be off in its predictions. If US interest rates fall and growth accelerates, demand for oil may increase. And finally there is the Iran factor. The sanctions imposed on his oil industry by Donald Trump remain in place, but their implementation is not strictly observed. Iran's oil exports have thus increased from 500,000 barrels per day in 2020 to 1.5 million barrels per day this year. According to the IEA, in 2022 Iran collected $62 billion in revenue from oil and gas exports. Thus, Tehran has the financial ability to finance its proxies in the Middle East war, including the Houthis. With the US presidential election looming, Joe Biden may come under heavy pressure from Republicans to toughen his stance on Tehran, reducing Iran's oil supply.

The biggest risk but it will be if Iran decides to close the Strait of Hormuz, the narrow sea passage between the Persian Gulf and the Gulf of Oman, through which about 21 million barrels of oil, 1/5 of the world's consumption, pass daily. In this case, an amount of oil four times that threatened by the sanctions against Russia will be missing from the market in 2022. And in this case, oil prices will definitely exceed $100 a barrel.

Source: www.kathimerini.com.cy

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