In the face of a series of potentially threatening political and industrial developments, the oil market is remaining surprisingly calm.
Three major crude producers – Iran, Libya and Venezuela – are, for different reasons, facing severe restrictions on their ability to supply the market.
Meanwhile, shipping has been attacked just off the key port of Fujairah in the United Arab Emirates (UAE), with sabotage carried out by persons so far unidentified by the country’s authorities.
Brent and WTI trade in narrow ranges
And in Saudi Arabia, two pumping stations have been attacked, again by people whose identities and motivations are not clear at this stage.
Perhaps most ominously of all in terms of future oil supply is the despatch to the Persian Gulf of the US aircraft carrier Lincoln, as President Donald Trump ratchets up tension with Iran.
This morning, Brent crude – a benchmark used in many international contracts – was 0.31% lower at $71.88 a barrel. A month ago, on 22 April, it stood at $74.04 a barrel and, three months ago on 21 February, it was changing hands at $67.07.
Even a year ago, its price was not markedly different from current levels, at $79.22 on 21 May 2018.
It was a similar story with the US benchmark West Texas Intermediate (WTI). Currently trading down 0.12% at $63.06 a barrel, it was worth $65.70 on 22 April, $59.96 on 21 February and $72.13 on 22 May 2018.
In its most recent report, the International Energy Agency (IEA) not that “geopolitics and industry disruptions [are] confusing the supply outlook”, adding an extra difficulty facing the industry, this arising in Russia.
“We are…monitoring the impact of the contamination of Russian crude oil passing through the 1.4 million barrel per day Druzhba pipeline system. The issue will be resolved in due course, eased by commercial and government stocks drawn by Russia’s customers.”
“Strategically vital” Strait of Hormuz
But it warned: “One consequence could be a loss of confidence in the quality of the crude flows and thus a search, where feasible, for alternative supplies that could intensify price pressures for heavy-medium sour crude oil.”
However, the IEA noted that, overall, prices are little changed and, so far, the market has remained calm.
One reason for this, the agency suggested, is that, while there is some threat to supply, there has been a partially-offsetting reduction in demand.
The IEA said it was keeping a close eye on the attacks at Fujairah in view of its proximity to the “strategically vital” Strait of Hormuz.
It concluded: “[We are] reassured to see that the challenges posed by the supply uncertainties are being managed and we hope that major players will continue to work to ensure market stability.”
The IEA was established in 1974 in the wake of the oil crisis of the previous year to provide a forum for discussion of energy matters. It has 30 member-countries.