Oil: War Risks Sustain Elevated Prices – Rabobank

Oil prices have reached their highest level since April. Rabobank's Senior Macro Strategist Bas van Geffen points to market concerns over a potential escalation in the US-Iran conflict following the US midterm elections. Possible strikes by the US, Israel and coalition partners against Iran and the Houthis, alongside associated attacks on Gulf countries, underpin Rabobank strategists' higher refined product price forecasts and expectations of persistent energy inflation.

Higher Energy Prices: War Scenarios Support Outlook

"But all eyes are increasingly turning to the US midterm elections next week, and the risk of renewed escalation of the US-Iran war after the polls have closed. Oil prices rose to the highest level since April as evidence builds of possible new US strikes on Iran."

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"As our global and energy strategists write, we assume the US, Israel, and a broader Arab and European coalition are likely to attack Iran and the Houthis and to defend Saudi Arabia. If such an escalation happens, Iran and the Houthis would probably attack the Gulf countries and potentially Egypt. This fighting could last until the end of 2027Q1 at varying intensity."

"That will contribute to elevated oil prices. Our main concerns remain diesel and marine fuel oils. Between the wars in Iran and Ukraine, nearly 12% of the world's refining capacity for making gasoline, diesel and other fuels is offline."

"Inventory declines will be even steeper if we see double escalation in Russia-Ukraine and the Middle East, and it looks like the only path forward to lower prices and rising inventories is double de-escalation in both Russia-Ukraine and the U.S.-Iran wars. This is the basis for revising our refined products forecasts higher."

"So, energy inflation is bound to stay high for some time. President Lagarde admitted that inflation will stay well above target in the coming quarters."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)