Up or down?: The mystery over the oil market

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The oil world has had a surprisingly calm reaction to the Middle East conflict this week. That could change quickly.

The question of how Israel might retaliate against Iran’s missile strikes this week has everyone on tenterhooks. While there might be more significant concerns about the prospect of an enlarged conflict in the Middle East, among those anxiously awaiting Israel’s response is the oil industry.but hasn’t indicated what that response might look like, but an obvious target would be Iran’s oil infrastructure, the lifeblood of its ailing economy.

The relatively modest response in the oil market to this week’s developments says that traders in the oil market don’t expect Israel to damage Iran’s oil industry and impact its capacity to supply the market, are discounting the prospect of a closure of the Straits of Hormuz, or they don’t think any reduction in Iran’s production will have a material effect on supply., will have urged Israel not to do anything that might cause oil prices to surge.

Its efforts to push prices up – the Saudis, who have borne the brunt of the production cuts, are thought to need a price of $US85 a barrel or more to balance their budget – have been undermined to a degree by some of its members producing above the quotas they agreed to.

Outside OPEC and its associates, the US, Canada, Guyana and Brazil have been increasing their production – the US has been producing at near-record levels of about 13.2 million barrels a day – which has pushed the OPEC+ global market share down steadily, to its current 48 per cent.

 

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