By Georgina McCartney and Liz Hampton
The oil industry and markets have had a muted reaction to rising tensions in the Middle East, a sign of just how well stocked oil supplies are as U.S. output grows and OPEC+ prepares to lift production. The global oil benchmark jumped 5% on Tuesday after Iran’s attack on Israel, but settled only 2.6% higher at $73.56, indicating stability in the market.
The U.S. is currently pumping some 13.4 million barrels per day of oil and is expected to reach a record 13.49 million bpd by the end of the year. On the other hand, OPEC+ is set to start raising output later this year after focusing on production cuts since 2022.
Historically, tensions in oil-producing regions would have led to significant price spikes. However, with ample supply and concerns about soft demand, the market has been able to absorb these events. The CEO of Black Mountain Energy, Rhett Bennett, noted that the diversity of supply sources and healthy spare capacity within OPEC have insulated the market from supply shocks.
Despite the ongoing conflicts in the Middle East, global crude supplies remain undisturbed. OPEC+ has significant spare production capacity, limiting the impact of Middle East tensions on prices. The International Energy Agency estimates OPEC+ spare capacity at 5.7 million bpd, with Saudi Arabia accounting for the majority of the buffer.
While escalating tensions in the Middle East may support oil prices in the short term, U.S. operators are unlikely to ramp up production quickly. OPEC+ plans to add 180,000 bpd to the global market in December, potentially prompting other members to increase output. However, shale oil executives remain cautious about changing their business plans in response to these developments.
Analysts at Wood Mackenzie are forecasting higher Brent prices for October at $81 per barrel, but this outlook could change depending on the situation in the Middle East. Currently, Brent is trading at around $73.95 per barrel, while WTI crude futures are at $70.23 per barrel.
The oil market remains steady in the face of geopolitical tensions, demonstrating resilience and stability in the industry. Investors should monitor the situation closely and be prepared for potential shifts in oil prices based on global events.
