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The impact of Israel's attack on Iran on oil prices and the outlook for the energy sector
On Monday, the oil market was surprised by a sharp drop in Brent prices and WTI following an Israeli attack on Iran last weekend. While the Israeli move was widely reported, the actual impact on the energy sector was smaller than expected, as strategic oil and nuclear energy facilities were spared. Thus, the global market continues to react to the new uncertainties, while experts ponder the economic and geopolitical effects of this new escalation of tensions in the Middle East.
What caused the fall in oil prices?
The prices of futures contracts of Brent oil and US West Texas Intermediate (WTI) prices fell sharply on Monday, with Brent trading at $71,62 per barrel – down 5,8% – and WTI tumbling 6% to $67,31. These values are the lowest since the beginning of October and reflect a market that, until recently, maintained high expectations regarding geopolitical risk.
- Geopolitical Factors: Israel’s recent military action in Iran led to initial fears that energy supplies could be disrupted. However, the strikes were more measured and did not hit critical oil infrastructure, minimizing the impact on global supplies.
- Expectation of Retaliation: While the attack represents an escalation in tensions between Israel and Iran, the lack of direct damage to energy facilities prompted a reassessment of the risk premium by the market, driving prices lower.
- Political Influence: Analysts including John Evans of PVM Oil Associates suggest that Israel’s response may have been limited to avoid negatively influencing the US presidential election. As a result, the impact on global markets has so far been less severe than analysts initially feared.
Market analysis and review of price projections
O oil market, sensitive to geopolitical events and changes in supply and demand, reacted quickly to news of the attack. Therefore, analysts from major banks and brokerages revised their expectations for the sector:
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- Target Price Reduction: Citi, in a note to investors, reduced its projection for Brent from US$74 to US$70 in the next three months, considering the decrease in immediate geopolitical risk.
- OPEC+ Production Outlook: The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, are due to meet on December 1 to discuss adjustments to oil production. Industry experts believe the OPEC+ decision will be a key factor in stabilizing the price of a barrel, especially given expectations of slower global economic growth.
What is the impact on the Brazilian economy?
The fluctuation in the price of Brent oil has important reflections for Brazil, both in the export sector and in the domestic economy. Below are some of the most notable impacts:
- Reduction in Export Revenue: As a major oil exporter, Brazil directly feels the fall in barrel prices, which reduces export revenue and may impact the sector's growth.
- Impact on the Trade Balance: With falling oil prices, the trade balance could suffer, especially if exports fall while imports remain high, putting pressure on the economy.
- Investments in the Oil and Gas Sector: Low prices tend to reduce foreign investment in the sector, affecting large projects and job creation in Brazil.
- Impact on Fuel Prices: One side effect is the possible reduction in fuel prices for Brazilian consumers. If oil prices continue to fall, this could alleviate some of the inflationary pressure.
Can the conflict have a quick solution?
According to Vivek Dhar of the Commonwealth Bank of Australia, the situation in the Middle East is unlikely to resolve itself quickly. Although Israel's attack has been more restrained, there are doubts about a lasting ceasefire between Israel and Iranian-backed forces such as Hamas and Hezbollah. Instability in the region remains a concern for the oil market and may influence prices again.
Expectations for the price of oil in the coming months
The uncertainties in the geopolitical scenario are compounded by other factors, such as OPEC+'s production policy. Here's what to expect:
- Possible Production Reductions: With the next OPEC+ meeting in early December, there is a chance that the cartel could opt to maintain or even reduce production if demand remains low and prices remain stable.
- Global Energy Demand: A key factor will be the recovery in energy demand in economies such as China and the European Union, which could push up oil prices if supplies remain low.
- Influence of the North American Market: The behavior of the United States, the world's largest oil consumer, will also be decisive. The elections and the government's stance on the Middle East will have a direct impact on prices.
A scenario of high volatility and variable expectations
Israel's recent attack on Iran has brought unexpected volatility to the oil market, generating a significant drop in prices in the short term. Experts continue to monitor new developments in the Middle East and the stance of OPEC+ in the coming weeks, which will be crucial for the future of the sector. For Brazil, the fluctuation in oil prices could represent both challenges for the economy as well as opportunities, especially for consumers.
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