The recent escalation of the Israel-Hamas conflict has raised concerns among oil experts regarding its potential impact on energy markets. While the overall effect is expected to be limited, experts anticipate a knee-jerk reaction in crude oil prices when markets open on Monday. This article explores the analysis provided by energy experts and sheds light on the factors that may influence the energy markets in the coming days.
Limited Impact on Oil Markets
According to energy experts interviewed by CNBC, both Israel and Palestine are not major players in the oil industry. However, the conflict between the two nations is situated within a significant oil-producing region, which raises concerns about potential wider implications. Vandana Hari, CEO of Vanda Insights, cautioned that a risk premium may be factored into oil prices until the market is assured that the conflict will not disrupt oil and gas supplies in the Middle East.
Regional Escalation and its Consequences
While the immediate impact on oil prices is expected to be limited, experts highlight the potential for the conflict to escalate regionally. Iman Nasseri, Middle East managing director of energy consultancy Facts Global Energy, stressed that if the conflict expands into a regional war involving the United States, Iran, and other supporters of the parties involved, it could have a more significant impact on oil supply and prices. However, at this stage, the likelihood of such an escalation remains uncertain.
Oil Production in Israel and Palestine
Israel has two oil refineries with a combined capacity of nearly 300,000 barrels per day, but it has no significant crude oil or condensate production. The Palestinian territories, on the other hand, do not produce any oil. While the conflict does not directly affect oil production or supply, its proximity to the important oil-producing and exporting region raises concerns about potential disruptions.
Potential Market Reactions
Despite the limited direct impact, experts warn that the ongoing Israeli-Palestinian conflict carries the potential to widen into regional hostilities. This uncertainty may lead to market volatility and increased risk perceptions, which could temporarily influence oil prices. However, the overall stability of energy markets will depend on the containment of the conflict and the absence of further escalations.
Global Inventory Levels and Production Cuts
It is worth noting that global oil inventories are currently low, and recent production cuts by major oil-producing countries, including Saudi Arabia and Russia, have contributed to inventory draws. Pierre Andurand, a French businessman and hedge fund manager, noted that these factors may lead to increased demand for Saudi supply in the future, potentially impacting oil prices.