Demand, Mideast conflicts and oil markets

Key takeaways:

Oil markets:

– While the geopolitical tensions between Israel and Iran have relatively eased, they have not entirely vanished. Additionally, other issues persist, including, the war in Gaza, disruptions in the Red Sea, the war in Ukraine, and recent sanctions on Iran.

– Geopolitics always matter when analysing energy markets but their impact should not be assessed in isolation from other factors influencing the market. In oil, spare capacity is key.

– Only a few weeks ago, many expected central banks to start cutting interest rates. Now minds are focused once again on stubborn inflation. Uncertainty prevails about China’s economic and therefore oil demand outlook.

– OPEC is most bullish about oil demand growth this year. If its expectations prove to be correct, we can expect a gradual unwinding of the group’s voluntary cuts. However, there is at least 1 million barrels a day difference in OPEC’s demand forecasts and the more bearish IEA.

Gas markets

– Less than two years ago, gas prices skyrocketed globally, and particularly in Europe. 

– In Europe, a myriad of factors has put a downward pressure on prices since. These include, above seasonal levels of gas storage, demand destruction due to the war in Ukraine, and ample gas supply primarily coming from the US LNG.

– LNG has transformed gas markets, connecting hitherto isolated regions.