As oil prices move alongside geopolitical tensions, one energy expert predicts further escalations, but says they’re likely to happen in a coordinated manner that won’t upset oil markets.
On Thursday Bloomberg News reported that oil prices pulled back after the most significant gains in nine months. The pullback followed a 4.3 per cent increase in West Texas Intermediate (WTI) prices Wednesday, marking the biggest daily increase since October. Wednesday’s oil gains came after reports that a suspected Israeli strike killed a top Hamas leader in Iran’s capital.
“If there’s one silver lining when it comes to the outlook for stability, it’s that actually the leadership in Israel, Iran and Hezbollah do have one thing in common. None of them really want a costly major regional war,” Clay Seigle, the global oil service director at Rapidan Energy Group, said in an interview with BNN Bloomberg Thursday.
However, he added that amid “strikes and counter strikes” the process of de-escalation becomes more difficult as tensions move higher. Seigle said that currently, the “ball is in Iran’s court” and he thinks the nation will look for retaliatory measures that are “tough enough” while avoiding further escalation.
“At Rapidan, we’re thinking that the most likely outcome is a sizable retaliation but one that does not provoke further fear and anxiety in the market,” he said.
WTI oil was trading around 0.89 per cent lower at about US$77.22 early afternoon Thursday.
Seigle said he is expecting WTI oil prices to average around $84 for the third quarter.
“That’s based primarily on world conditions, but also on regional conditions. And so we are expecting some growth in Canadian oil production, approximately 200,000 barrels per day this year versus last year. And we have not seen major disruptions from wildfires, so that’s still on track,” he said.
China’s demand outlook
Seigle also highlighted that the oil demand picture in China is currently a “big x factor” that warrants the attention of investors.
“The stimulus that we were expecting to really drive construction demand for diesel fuel has not materialized in the first half of the year,” he said.
“Other parts of the barrel, like gasoline and jet fuel, look more constructive. So China’s still on track for oil demand growth, also from the petrochemical sector, but diesel looks especially weak.
