A 3D-printed oil pump jack is seen in front of a displayed stock graph in this illustration picture. — Reuters
THE escalating conflict between Israel and Iran so far has had a limited impact on oil prices as refineries and other infrastructure have not come in the line of fire, but the market is not discounting that possibility as Israel weighs its options on retaliatory strikes, which could potentially alter the scenario.
The possibility of attacks targeting Iran's oil industry, and the risk to overall Middle Eastern oil supplies, has risen after US President Joe Biden said oil sector attacks could be on the table in retaliatory strikes by Israel. While the oil market has been seeing strong prices on concerns that Israel could hit Iran's oil infrastructure in response to Tehran's ballistic missile attack on Oct. 1, Biden's comments helped to extend the rally.
Iran has also said any retaliatory attacks by Israel would prompt a powerful attack by its armed forces throughout the region. It has also frequently threatened to effectively shut down shipping trade through the key Strait of Hormuz chokepoint in the past.
Reflecting this risk of a direct conflict between Israel and Iran, S&P Global Commodity Insights expects Platts Dated Brent to average $81/b in 2024 before easing to around $75/b in 2025.
As OPEC's third-largest producer after Saudi Arabia and Iraq, Iran's crude output averaged 3.18 million b/d in August, according to the latest Platts OPEC+ survey by Commodity Insights.
Despite US sanctions, Iran's crude and condensate exports hit 1.7 million b/d in August, up from around 1.1 million b/d in early 2023, according to tanker tracking data from S&P Global Commodities at Sea. A portion of Iran's oil exports are effectively unsanctionable because some Chinese importers have little or no nexus to the US financial system.
President Biden spoke with G7 leaders on Oct. 2 to coordinate new sanctions and other measures in response to Iran's recent attack on Israel, while the US Treasury Department issued a new round of sanctions on the Iran-backed Houthi rebels in Yemen.
Iran's oil infrastructure, trade flows
As tensions mount, Iran has seemingly suspended its seaborne crude exports in recent days amid looming threats of an Israeli attack, while the number of tankers sailing to the country has also declined, according to CAS data.
Latest CAS figures suggest no liftings of crude, condensate and fuel oil -- the country's main oil exports -- have been recorded since Sept. 29 as geopolitical conflicts between Iran and Israel escalate. Iran normally ships 7-10 crude charges each week, the data shows.
Iran has one of the largest refining sectors in the Middle East, with about 2.4 million b/d of installed capacity in 2023. Any attack on oil infrastructure has the potential to significantly disrupt the market.
Its three biggest refineries are the 370,000 b/d Isfahan plant, the 360,000 b/d Abadan refinery, and the 320,000 b/d Bandar Abbas site.
In addition to the 320,000 b/d crude oil refinery at Bandar Abbas, the Persian Gulf Star project located at Bandar Abbas has about 399,000 b/d of condensate splitter capacity. Completed in 2018, the Persian Gulf Star plant is Iran's newest and most important domestic source of gasoline, accounting for about 40% of the country's needs in 2023, according to Commodity Insights.
On the supply side, market participants are also closely watching the production strategy that OPEC+ will adopt amid rising Middle East tensions.
Expectations of a crude supply glut in 2025 are surely limiting the ability of OPEC and its Russia-led allies to shape the market into the fourth quarter.
For now, OPEC+ has decided to stick to its plans to reintroduce 2.2 million b/d of voluntary cuts from December and maintain current production until then, despite consternation about some members' ongoing failure to meet production targets. The Joint Ministerial Monitoring Committee overseeing the group's production pact met Oct. 2 but did not recommend any changes to current plans.
Libyan crude will also add to the supplies in the coming months. Commodity Insights expects exports to rise from under 500,000 b/d in September to about 800,000 b/d in October, after force majeure at all fields was lifted Oct. 3.
Asian demand
On the demand side, oil suppliers hope that Beijing's recent policy measures could potentially lift flagging economic growth and demand.
China's central bank recently introduced an extensive stimulus package to revive relatively weak economic growth. While Commodity Insights sees this move as something that can support prices in the very near term, the sustainability of the optimism would depend on addressing underlying structural issues, such as weak private consumption and ongoing deflationary pressures.
Market participants expect Beijing to provide additional economic stimulus if the current set of measures fails to make a positive impact on the economy. This would eventually help to lift the demand for commodities.
Commodity Insights expects total Asian liquids demand to grow by 1.5 million b/d quarter over quarter in Q4 2024 and by 1.17 million b/d year over year, led by mainland China and India, together accounting for more than 60% of the annual demand growth. Mainland Chinese transport demand is expected to see an uptick during the golden week holiday in the first week of October while India's festive season will begin early October onwards, both supporting transportation fuel demand in Q4
Meanwhile, consumption in Southeast Asia is expected to remain strong, supported by manufacturing-led growth in markets like Indonesia, Thailand and Vietnam. Moreover, economic momentum in most Asian markets remains on track, further supporting demand growth in the region.
According to Commodity Insights, the outlook for Asian oil demand growth in 2024 and 2025 remains strong, at 0.67 million b/d and 0.84 million b/d, respectively.
Sambit Mohanty is Asia Energy Analyst at S&P Global Commodity Insights, leading coverage for Platts Oilgram News for the Asia-Pacific region. Sambit is based in Singapore and has more than 25 years of experience as a senior journalist and editor analyzing commodities and energy trends in the region. He holds a Master’s Degree in Applied Economics.
