Middle East Conflict Sparks Short-Lived Oil Price Spike, Yet Market Remains Stable thanks to Ample Supply and Production Capacity

Ample supply and spare capacity are mitigating the impact of the conflict in the Middle East on oil prices, despite initial concerns over disruptions following news of Israel’s attack on Iran. Brent and WTI crude oil prices spiked on April 19, but quickly stabilized and closed at the same level as the opening price.

According to analyst Tamas Varga, the conflict in the Middle East has not significantly affected oil supply in the region. Factors such as abundant global supply, increasing oil production in the US, and the resumption of output in Libya have contributed to market stability. Additionally, the Organization of the Petroleum Exporting Countries and its allies have ample production capacity, further helping to control oil prices.

Energy analysis firm Rystad Energy believes that the fundamental price of Brent is around $83 per barrel, indicating that current prices already account for geopolitical risks. The International Energy Agency estimates that OPEC+ has spare capacity of up to 6 million barrels a day, reducing the likelihood of supply disruptions. As a result, price fluctuations in response to supply and demand risks are expected to be softened.

The narrowing price difference between May and November deliveries of Brent oil suggests a decrease in scarcity. OPEC+’s ability to maintain production levels and market awareness of ample supply buffers help to mitigate price volatility. Overall, current market conditions indicate a level of stability despite geopolitical uncertainties.