Background on Key Figures and Relevance
The recent decline in oil prices has been a significant topic of discussion, with key players such as the United States and Iran at its core. The U.S. has been involved in tensions with Iran, including attacks on Iranian nuclear facilities. These events have contributed to market uncertainty and volatility in oil prices.
Oil Price Decline
Sharp Drop in Oil Prices:
Over the past three days, oil prices have experienced a substantial drop. This decline is primarily due to reduced expectations of a broader conflict between Israel and Iran, as well as decreased risks related to crude supply disruptions in the Middle East.
- Brent crude futures fell by 4.43 USD (6.07%) to 67.14 USD per barrel on Tuesday.
- West Texas Intermediate (WTI) dropped by 4.14 USD (6.04%) to 64.37 USD per barrel on Tuesday.
- Mexico’s export blend closed at 60.87 USD, a decrease of 6.88% or 4.5 USD on Tuesday.
These price reductions mark the third consecutive day of declines, with Brent down 14.85%, WTI down 16.25%, and the Mexican blend down 13.33% since the conflict began on June 12.
Experts’ Perspectives
Risk Reduction and Market Fundamentals:
According to Antonio Montiel, director of Analysis at ATFX Latam, the anticipated ceasefire and authorities’ commitment to uphold the agreement have diminished risk premiums associated with oil, particularly those linked to Iranian activities in the Strait of Hormuz.
Montiel further explains that as tensions in the Middle East decrease, the oil market’s focus will likely shift back to bearish fundamentals. These factors include structural demand slowdown in China and additional supply from OPEC+, potentially leading to a significant surplus over the next 18 months and pushing crude prices towards approximately 60 USD per barrel.
Amarpreet Singh, Barclays analyst, notes that oil prices have plummeted due to the U.S. attacks on Iranian nuclear facilities failing to spark a larger conflict threatening regional supply.
However, Singh acknowledges that although these risks have lessened, they haven’t disappeared while the conflict between Israel and Iran persists. He warns that the potential closure of the Strait of Hormuz remains an extreme risk, but oil prices would likely surpass 100 USD per barrel in such a scenario due to limited alternatives for bypassing the narrow passage and associated trade restrictions.
Impact on Oil Companies
Decline in Oil Company Stocks:
Since the start of the Middle Eastern conflict, stocks of oil companies have experienced a downturn.
- ConocoPhillips, an American oil exploration and production company, saw a 5.59% drop to 89.39 USD per share.
- TotalEnergies, a French oil and gas company, experienced a 4.09% decline to 52.50 EUR.
- BP, primarily involved in oil and gas, fell 3.35% to 3.67 GBP.
- Saudi Aramco, Saudi Arabia’s state-owned oil and gas company, decreased by 2.48%.
- Equinor, the Norwegian oil company, lost 1.38%.
- Exxon Mobil dropped 1.22%.
Key Questions and Answers
- Q: Why have oil prices fallen so drastically? A: The decline is primarily due to reduced expectations of a broader conflict between Israel and Iran, as well as decreased risks related to crude supply disruptions in the Middle East.
- Q: How have oil company stocks been affected? A: Stocks of major oil companies, including ConocoPhillips, TotalEnergies, BP, Saudi Aramco, Equinor, and Exxon Mobil, have experienced significant drops since the conflict began.
- Q: What do experts predict for oil prices in the near future? A: Experts anticipate a potential surplus due to structural demand slowdown in China and additional supply from OPEC+. This could push crude prices towards approximately 60 USD per barrel over the next 18 months.
