$100 oil doing the rounds amid supply shocks, geopolitical fears

Oil markets have largely shrugged off Iran’s unprecedented attack on Israel.
In fact, prices fell by about 1% a barrel on Monday and continue to dip for a second day on Tuesday as concerns about Middle East supply eased, while stronger than expected US retail sales dampened investor hopes for demand-spurring cuts to interest rates.
But over the weeks, the oil market has gone from languid to lively, with Brent futures blowing past the key $90-a-barrel threshold as critical gauges flash steadily more bullish signals.
The surge in headline prices — with Brent now up 18% this year — has been driven by a combination of supply constraints including Opec+ curbs, robust demand, and wider geopolitical risks, especially in the Middle East.
Many refined-product markets are also strong, with gasoline posting big gains.
As traders weigh the possibility that $100-a-barrel crude could make a comeback, the momentum is diverting their attention from the possibility of a cease-fire in the Middle East, as well as the impact of higher prices on refinery margins.
In a wider sense, the foundations of oil’s persistent rally go deeper: Global supply shocks that are intensifying fears of a commodity-driven inflation resurgence.
A recent move by Mexico to slash its crude exports is compounding a global squeeze, prompting refiners in the US — the world’s biggest oil producer — to consume more domestic barrels.
American sanctions have stranded Russian cargoes at sea, with Venezuelan supply a potential next target.
Houthi rebel attacks on tankers in the Red Sea have delayed crude shipments. And despite the turmoil, Opec and its allies are sticking with their production cuts.
It all adds up to a magnitude of supply disruption that has taken traders by surprise. The crunch is turbocharging a rally ahead of the US summer driving season, threatening to push Brent crude, the global benchmark, to $100 for the first time in almost two years.
That’s amplifying the inflation concerns clouding US President Joe Biden’s reelection chances and complicating central banks’ rate-cut deliberations.
Crude markets in Europe, meanwhile, are pressured higher by the Houthi attacks in the Red Sea, which sent millions of barrels of crude on a detour around Africa, delaying some supplies for weeks.
Disruptions to a key North Sea pipeline, unrest in Libya and a damaged pipe in South Sudan also contributed to the rally, while US sanctions have deprived Russia of tankers that previously transported its oil to buyers including India.
It’s a stark contrast from just a few months ago, when oil plunged to multi-month lows as US production climbed and Russian seaborne crude exports ratcheted higher despite sanctions, which have since been expanded.
The US Energy Information Administration, after forecasting global inventories to remain unchanged this quarter, now predicts they’ll fall by 900,000 barrels a day. That’s the equivalent to the production from Oman.
Looking ahead, the world’s biggest commodity traders are increasingly confident of a bullish oil market into the second half of the year after prices pierced $90 a barrel for the first time in months.
For sure, oil’s see-saw trajectory is a double-edged sword.
Lower prices would mean major oil producing countries will lose money regardless of the market share they enjoy. The Gulf countries produce oil at the lowest cost; but due to high government spending, they need higher prices to balance their budgets.
But big importing nations such as China, India and Germany could get some relief from falling energy bills.
And cheap oil can also cut investments to develop new oil and gas fields. Oil companies say global energy future envisages rising demand and population growth, making oil an important fuel for decades to come.
The world is in need of a stable oil market with price equilibrium.