Source: Zhitong Finance
Author: Zhao Jinbin

As the tension in the Middle East is likely to escalate into a broader regional war, the price of Brent crude oil broke through $90 per barrel for the first time since October last year.

There are reports that due to the growing threat of Iranian attacks, the Israeli embassy is already on high alert, and crude oil prices are absorbing more geopolitical risks. Iran promised to retaliate against Israel's attack in Syria this week, which killed senior Iranian military personnel.

The US issued its harshest public condemnation of Israel since the war with Hamas. President Biden called for an immediate cease-fire in Gaza and for Israel to take more measures to address the safety of Palestinian civilians and aid workers; earlier this week, an Israeli air strike killed 7 rescuers, and Prime Minister Netanyahu called this a tragic mistake.

The US White House said in a statement that in today's call, Biden “made it clear that America's policy on Gaza will depend on our assessment of Israel's immediate action on these steps”. This is the first time the US has hinted that it may reassess support for Israel's war against Hamas.

Crude oil is also supported by signs of tightening global supply and strong US fuel demand. The price of WTI crude oil futures for May delivery on the New York Mercantile Exchange closed up 1.3% to 86.59 US dollars/barrel, and the recent month Brent crude oil for June delivery closed up 1.4% to 90.65 US dollars/barrel. This is the fifth consecutive trading day that these two benchmark crude oil prices have risen, and it is also the highest settlement price since October 20.

Meanwhile, US gas futures prices fell because US domestic inventories were still nearly 40% higher than the five-year average, and the price of recent monthly natural gas futures for May delivery on the New York Mercantile Exchange fell 3.6% to 1.774 US dollars/million British thermal units.

Matt Maley of Miller Tabak+Co. said: “If there is a direct conflict between Israel and Iran, this could limit the supply of oil from the Middle East. It hasn't been an issue so far, but it may soon become an issue.”

Citigroup analysts said that in view of the OPEC+ extension of the production reduction agreement and the risk that Iran's supply will be affected by the Middle East conflict, the rise in oil prices makes Brent crude oil within reach of the range of $93 to $95, although there may be strong resistance at this level, as this may cause producers to sell forward contracts, and speculators will end in profit.

However, Citi is still pessimistic about the outlook for oil prices in 2025 and predicts that demand growth will slow to less than 1 million b/d. The reason is that aviation fuel recovery lost momentum in the post-pandemic era, and the popularity of electric vehicles became more obvious.

“We will continue to see a shift from a bull market to a bear market until the middle of this year,” Citi said.

Editor/Jeffy