Oil price might reach $100 in regional war scenario: analysts
KUWAIT: As geopolitical tension grips the region, the price of oil, especially the Brent crude, is expected to hover around $70 per barrel with the possibility of reaching $100 if war occurred as tension between the US and Iran escalates. The price of Kuwaiti oil jumped by $4, reaching $65.17 pb Friday as opposed to the rate a week before.
Kuwaiti oil analysts said that the hike in oil price would have a grave effect on global economy in general. Head of Al-Ufouq (horizon) strategic study center Dr Khaled Bodai said that the current status quo of the oil market was adequately reacting to the level of tension in the region, predicting that the price will hover around $60 to $70 per barrel if tension continues. In the case of war, the price will rise over $100 per barrel as the flow of oil through the Strait of Hormuz – which accounts for 20 percent of global crude consumption – will surely be affected, said Dr Bodai who revealed that the percentage amounted to 20 million barrels per day.
About 25 percent of natural gas also goes through the same strait, he indicated, revealing that Saudi Arabia and the UAE have exporting alternatives, which were used to max capacity as of the current moment. He noted that the closure of the Strait of Hormuz for more than two months will have a tremendous effect on refineries operations, flow of oil, and industries; however, such scenario is highly unlikely and even if it occurs, the closure will be short-lived due to the fact that the strait was also used for commercial goods transportation. The process of closure will heavily affect China, India, and various Asian countries, Dr Bodai affirmed.
The most likely event to occur will be the increase of oil prices, said the analysts who revealed that such increase could be avoided providing that there were alternative methods to cover the decrease in supplies. Whether the increasing production of shale oil could save the situation, Dr Bodai said that the amount produced currently would not be able to cover the market’s needs. He added that OPEC, in the current situation, has fewer economic options to counter this alarming political upheaval.
Meanwhile, fellow oil analyst Mohammad Al-Shatti said that Asian markets highly depended on supplies from the GCC region with the European and North American regions coming in second and third respectively. Any malfunctions in delivering supplies will lead to a quick international reaction, pointed out Shatti who added that though there were alternatives for delivering oil in the world via the Red Sea, the world still needs the oil flow coming from the Strait of Hormuz.
Despite the recent incidents in the region, the price managed to be between $60 and 65 per barrel, said Shatti, adding that the trade dispute between the US and China contributes to the hike in prices to reach $75 pb. He added that the scenario of the record hike in prices was still possible with the continuation of regional tension. The decrease of the price to reach $50 pb is farfetched especially due to the Gulf regional tension and the trade war between China and the US, said Shatti who noted that the world is awaiting the upcoming meeting of OPEC next week, which would surely address the current global status quo. – KUNA
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