Commodity Markets: Oil Prices Have Increased by 30 Percent Since the Start of the Conflict

The Middle Eastern crisis triggered by the U.S. and Israel’s attack on Iran shows no signs of abating, causing oil and gas prices to rise and then fall, as noted in the regular HUP Weekly Focus.

Thus, the price of Brent crude oil has been extremely volatile since the onset of the U.S.-Iran conflict. Due to fears of supply disruptions, particularly in the Strait of Hormuz through which about one-fifth of the world’s oil trade passes, the price briefly reached 120 dollars per barrel, after which it fluctuated around 100 dollars with greater oscillations. Political statements and expectations regarding the further course of the conflict have a strong influence on price movements.

Two Significant Risks

The President of the United States has indicated that the war could end relatively quickly, which has reduced the premium, and sanctions on Russian oil have been temporarily lifted for one month. The International Energy Agency (IEA) has decided to release a record 400 million barrels from strategic reserves, while the G7 is considering a similar move. Due to the uncertainty regarding the duration of the conflict and potential transportation disruptions from the Persian Gulf, continued volatility in oil prices is expected in the short term.

The same applies to the price of European gas. It also shows significant volatility and is currently at a level 16 percent higher compared to the beginning of the war (51 euros per megawatt). During the escalation of the conflict, the price briefly reached around 70 euros per megawatt, but then a correction occurred. Like the price of oil, in this case, its calming was partially influenced by the aforementioned statement from the President of the United States, which has temporarily eased market tensions.

However, there are two significant risks in the market that could trigger further price fluctuations. First, Qatar has decided to postpone the expansion of LNG capacity until 2027. Second, Russia, as the fourth largest LNG producer in the world, is considering the possibility of abruptly halting LNG exports to the EU, while the EU is contemplating price caps on this energy source. In the short term, we expect continued fluctuations in gas prices in both directions, and given the high uncertainty and strong volatility, prices are likely to remain above pre-war levels.