The price of Brent crude ended the week at $90.15 after closing the previous week at $90.89. The price of WTI ended the week at $85.45 after closing the previous week at $86.71. The price of DME Oman crude ended the week at $90.32 after closing the previous week at $91.35.

WAOP 4-15-24
(Source: Stratas Advisors)

Geopolitical uncertainty has been one factor providing support for oil prices and recent events in the Middle East are adding to the uncertainty. In response to Israel’s attack on Iran’s embassy in Syria, which killed seven Iranian officers, Iran seized a container ship in the Persian/Arab Gulf that is linked to an Israeli businessman. More dramatically, Iran launched an attack over the weekend consisting of hundreds of drones and missiles on Israeli military assets; however, most of the drones and missiles were shot down and many before entering Israeli air space. We have previously put forth the view that it was likely that Iran would continue with the restraint that it has exhibited since the beginning of the Israel-Hamas conflict and not take direct action against Israel, but instead continue with its strategy of using proxies to attack Israel. While Iran did launch a counterattack on Israel, it appears that Iran intended to deliver a message more than to do significant damage, given that the attack seemed to be telegraphed and that Iran announced the conclusion of the attack. The attack might have also served to gather information on how Israel and its allies would respond to such an attack and the associated capabilities.

Regardless, the attack will have some ramifications. It is now likely that the U.S. House of Representatives will move forward with passing an additional aid package for Israel. There is also the possibility that Israel will launch a counterattack against Israel – possibly against the Iranian facilities that manufacture drones – and even possibly against Iran’s nuclear capabilities. Before the Iranian attack, we held the view that the U.S. would put pressure on Israel to limit direct attacks on Iran – and we still hold to that view. It has been reported that President Biden has informed [Israel’s] Prime Minister Netanyahu that the U.S. will not support any Israeli counterattack. Additionally, the U.S. Secretary of State (Andrew Blinken) held discussions with Saudi Arabia, Egypt and Jordan, during which he stated that the U.S. would support Israel while emphasizing that the U.S. did not want an escalation of the military conflict. The last time that Israel was attacked by missiles, which occurred during the first Gulf War, the U.S. was able to convince Israel to not launch a counterattack. We think that will likely be the case with respect to this attack. Obviously, however, the tensions are elevated, and Israel may feel compelled to attack Iran, including in response to future attacks from Hezbollah that have been occurring along the Lebanon border. Additionally, Netanyahu is signaling that Israel is still planning to invade Rafah – despite the warning from the Biden Administration not to do so, which could trigger such attacks from Hezbollah. Recently, Hezbollah launched rockets into northern Israel, as well as into the Golan Heights, which is viewed as an escalation by Hezbollah.

We have also been highlighting that the oil market is becoming tighter with respect to supply with

OPEC+ maintaining its most recent production cuts of 2.2 MMbbl/d through Q2 in addition to the previous production cuts of 3.7 MMbbl/d. Additionally, the increase in non-OPEC supply has been more muted this year – including supply from the U.S.

With the heightened tensions in the Middle East, there is a concern that crude supply could be further reduced in various ways. Iran could attempt to block oil shipments through the Strait of Hormuz. We think this is unlikely, in part, because it would affect the supply of oil to China, which is a country with which Iran wants to maintain a favorable relationship. There is also the concern that the U.S. and its allies will enforce sanctions on Iranian oil exports. Since the beginning of the Biden Administration, Iran’s oil production has moved above 3 MMbbl/d and Iran’s exports of crude oil are approaching 1.5 MMbbl/d. We do not think that the U.S. will be more aggressive with respect to sanctions on Iranian oil because of concerns about pushing oil prices (and gasoline prices) higher while U.S. consumers (and voters) are still dealing with inflation. As such, while the concerns about the stability of oil supply are increasing, we do not expect oil supply to be disrupted – unless there is further escalation in the Middle East, which translates into a series of retribution.

Some downward pressure on oil prices will come from the strength of the U.S. dollar. The U.S. Dollar Index ended last week at 106.01, significantly up from the previous week of 104.29 and the highest since November 2023.

For a complete forecast of refined products and prices, please refer to our Short-term Outlook.

About the Author: John E. Paisie, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.