No ‘oil shock,’ but pricey fuel remains a concern

MANILA  -The International Energy Agency (IEA) said a sharp spike in geopolitical risk in the Middle East after war between Israel and Hamas broke out put the global oil markets on edge, with supply and demand recently tightly balanced.

However, DBS Bank in Singapore thinks risks have to worsen much more for oil supplies to be affected, saying that the chance of that happening remained low.

The Paris-based IEA said in their latest monthly Oil Market Report that, following a sudden escalation of risks in a region that accounts for more than one-third of the world’s seaborne oil trade, has painted a “highly uncertain” outlook for oil markets.

The industry think tank observed that oil prices had already surged to almost $98 a barrel in mid-September after Saudi Arabia and Russia extended their voluntary production cuts through the year-end.

This happened while inventories of crude oil and distillate fell to “exceptionally low levels.”

Further, the IEA said that by early October, supply fears gave way to deteriorating economic indicators and signs high prices were eating into demand in a major market like the United States.

“The hit to demand was even more substantial in many emerging and developing economies, where the rise in fuel prices was amplified by the strengthening US dollar and removal of subsidies,” the IEA added.

In a research note, DBS noted that crude oil prices have been rising since July as supply cuts by members of the Organization of Petroleum Exporting Countries were implemented.

Further, crude oil prices rose further this October as conflict risks exacerbated.

“We think risks have to worsen much more for oil supplies to be affected, and the chance of that remains low,” DBS said.

But the bank thinks there is excess capacity within Opec to offset lower Iranian output.

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