Analysts and traders in the oil sector said, in an analytical report by Reuters, that abundant supplies of some types of higher grade crude oil limit the impact of the conflict in the Middle East on futures prices.
Brent crude futures briefly exceeded $92 a barrel last week, the highest level since October. Although this had a negative impact on governments suffering from high inflation and fuel prices, the lack of supplies would have caused more severe consequences.
The conflict in the Middle East, the largest oil-producing region in the world, had no tangible consequences on its supplies.
“Without real problems in supply and production, the market will struggle to exceed the highest peak of the year that it reached at the end of last week,” said Tamas Varga of oil brokerage BVM.
Some of the highest grades of crude are showing signs of falling prices.
In the physical market for North Sea crude, the premium for Fortis crude compared to the latest price recorded by the benchmark Brent crude fell to 35 cents after reaching the highest level this year at $2.30 in February, data from the London Stock Exchange Group show.
Nigeria, Africa’s largest crude exporter, is facing difficulties selling cargoes scheduled to be loaded in May, and some sellers reduced offers this week. Two traders told Reuters that at least 35 shipments out of 49 were still for sale, which represents relatively slow sales at this time of the month.
On Friday, the price of Brent crude rose, driven by reports of an Israeli attack on Iran, by more than $3.50 to reach $90.75. But prices remained below the peak they reached last Friday, before returning to stability during the day.
Analyst Jorge Leon stated that Rystad Energy believes that the fair value of Brent crude is about $83 compared to market data, “which indicates a current premium linked to geopolitical concerns.”
“Despite the recent blow, Rystad Energy believes that if there is no major escalation in the Middle East, the geopolitical risk premium will stabilize before gradually decreasing,” he said.
“Oil prices are under control”
HSBC Bank analysts said that in addition to the unaffected supply, the OPEC+ alliance’s possession of abundant spare production capacity “contributes to keeping oil prices under control,” while noting that “a fair degree of geopolitical risk has been taken into account.” “Already taken into account.”
Signs of weak prices in the markets were driven by peak refinery maintenance work, increased supplies from the United States, and the end of supply disruptions from some producers, which led to a change in the upward trajectory that occurred in February.
Libyan oil production recovered after it was partially halted earlier in the year, and US crude exports to Europe rose in the first four months of the year on an annual basis, according to Kpler data.
A trade analyst said that there is a good abundance of US West Texas Intermediate crude.
Among other indicators of market fragility, the premium for the first-month Brent contract compared to the six-month contract fell to $3.51 per barrel yesterday, Thursday, the lowest level in about a month, indicating a decline in supply scarcity.
However, analysts say that while there is a supply of lighter, less dense crudes that contain a low percentage of sulfur, known as sweet crude, which can influence Brent prices, heavier crudes, which contain a high percentage of sulfur, known as sour crude, and are usually produced from the East. Middle, less abundant.
Veteran oil trader Adi Emirovich said that long-term OPEC+ supply cuts have led to the withdrawal of large supplies of high-sulfur crude from the market, especially since producers in the group prefer to sell their lighter crudes that generate more revenues.
Imerovic added that the imbalance between the supply of sweet and sour crude has increased due to two other developments, namely Mexico’s decision to reduce crude oil exports during the current and next months, and the UAE’s export of more light Murban crude while diverting the heavier Upper Zakum crude to the new Ruwais refinery.
OPEC+’s spare production capacity provides some room in the event of an actual supply disruption. The International Energy Agency estimates OPEC+’s surplus capacity at about six million barrels per day, equivalent to about six percent of global demand.
“The price is less affected by the possibility of a shortage or increase in supply if there is something to rely on (excess capacity),” said Tamas Varga of BVM.
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