Abundant supply curbs oil price rise

Analysts say that abundant supply and large OPEC+ spare capacity are easing the impact of conflict in the Middle East.

On April 19, Brent and WTI crude oil prices spiked following news of Israel’s attack on Iran, amid concerns that oil supplies in the Middle East could be disrupted. At one point, both crude oil prices rose nearly 4%. Brent reached $90.75 a barrel, while WTI rose to nearly $86 a barrel.

However, the market then went down, closing the session at the same level as the opening price. On Reuters , Tamas Varga - an analyst at brokerage PVM explained that so far, the conflict in the Middle East has not had a major impact on oil supply in the world's leading oil producing region.

“Without supply and production issues, it will be difficult for the market to reach new highs like last weekend,” he said. Last week, Brent crude oil prices reached $92 a barrel, the highest since October 2023.

Brent oil prices spiked early in the morning session on April 19, then gradually decreased towards the end. Chart: CNBC — Brent oil prices spiked early in the morning session on April 19, then gradually decreased towards the end. Chart: *CNBC*

Some oil grades are even showing signs of falling. In North America, Forties, a light crude from the North Sea, is now trading at just $0.35 above Brent, down from a premium of $2.30 in February, according to financial services firm LSEG.

Global supplies are now plentiful as refineries are undergoing pre-summer maintenance, U.S. output is rising and some countries are no longer experiencing production outages, a reversal from February.

Production in Libya has recovered, as the largest oil field resumed operations after a strike in January. US crude exports to Europe in the first four months of the year were also higher than the same period last year, Kpler data showed.

Even Nigeria, Africa’s top oil exporter, has yet to find buyers for the oil that will leave its ports next month. Some energy companies have had to cut prices. Reuters sources said Nigeria still has at least 35 of its 49 oil cargoes unsold.

Rystad Energy, an energy analysis firm, believes that a fair price for Brent is only around $83 a barrel, given the fundamentals. Therefore, the current price of $87 “already reflects the geopolitical risk,” said analyst Jorge Leon.

“Despite the latest attack, Rystad Energy’s view remains that unless tensions in the Middle East escalate significantly, the geopolitical risk factor in oil prices will stabilize and gradually decline,” he said.

The fact that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) still have ample room for production , along with the fact that supply has not been affected, "also helps to restrain oil prices," HSBC said. The bank also said that "current prices have sufficiently reflected geopolitical risks."

Brent crude for May delivery is now trading at a premium to Brent for November delivery, due to tight supplies. However, the premium is narrowing, now at $3.50 a barrel, its lowest in a month, meaning shortages are easing.

OPEC+ has plenty of room to produce oil, making supply disruptions unlikely. The International Energy Agency (IEA) estimates OPEC+'s spare capacity at nearly 6 million barrels a day, or 6% of global demand.

"Price movements in the face of supply/demand risks will be smoother if investors know the market has a buffer to rely on," Varga concluded.

Ha Thu (according to Reuters, Bloomberg)

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