Middle East Oil Disruptions May Spike Prices to $90

As we approach the July Fourth weekend and the broader summer driving season, oil prices (BZ=F, CL=F) have moved a notch higher. Multiple factors, including geopolitical tensions in the Middle East and seasonal factors, could potentially push crude oil even higher, contributing to this rise.
 
Andy Lipow, President of Lipow Oil Associates, shares his views on potential escalations in these Middle Eastern conflicts and how OPEC+ can continue to constrain supply. He explains, "OPEC+ has surprised the market before; they could do it once again. If crude oil prices were to remain in the $80 per barrel range, they could extend those voluntary production cuts through the end of the year." 
 
His statement comes amidst bearish market reactions following OPEC+'s initial announcements. The organization's decision to bring more supply onto the market sooner than expected was met with skepticism by investors who had been hoping for an extension of production cuts. 
 
Summer travel is driving increased demand and resurging geopolitical risks globally. In particular, tension continues building up in Israel as troops move towards its northern border with Lebanon due to anticipated violence with Hezbollah. A direct involvement from Iran would escalate this conflict further, which might disrupt supplies throughout the Persian Gulf region, a major concern for global oil markets. 
 
By taking into account increasing demand until year-end plus the aforementioned geopolitical issues, Brent crude oil prices are projected to drift upward, reaching approximately $90 a barrel, according to Lipow’s analysis. 
 
On another front regarding possible moves by OPEC+, he mentions their unexpected decision back in June: “In early June, OPEC Plus surprised the market not only extending their production cuts till the end September but also reducing those beginning in October.” 
 
He suggests that if current price levels persist around $80 per barrel, there may be an extension on voluntary production cuts until the end of the year, largely led by Saudi Arabia and Russia. However, the initial announcement stirred quite a negative response within the market, seeing it as a premature addition of supply. 
 
In the context of the upcoming presidential elections, Lipow notes that while the Biden administration has been taking steps to keep oil prices down, such as releasing strategic petroleum reserve crude oil last year or more recently releasing gasoline in the northeast's strategic petroleum reserves, it is difficult for any administration to control global oil markets post-election. He suggests the best approach would be to export additional quantities of energy, allowing more influence over these markets. 
 
Lastly, discussing various geopolitical risks globally, including drone attacks on Russian refineries by Ukraine and a potential growth story in China along with Middle Eastern tensions, Lipow identifies the Middle East as the biggest geopolitical risk due to its possible impact on crude movement. 
 
He points out how Russia has managed to skirt sanctions despite Ukrainian aggression and continuous enthusiasm within the market regarding China's growth story. However, he notes a recent dip in China PM I, which might dampen this enthusiasm, affecting oil prices negatively. 
 
In conclusion, whether it's OPEC+ decisions, escalating tensions in the Middle East, or seasonal factors influencing demand, all these elements play a key role in moving the global oil market. As we move forward into the second half of 2021, our eyes will remain locked on unfolding events across the globe impacting this crucial commodity.