Market Reactions: Oil Prices and Markets Respond to US-Israel Strikes on Iran

Overview of the US-Israel Strikes and Immediate Market Impact

Feb 28 (Reuters) - The United States and Israel launched strikes on Iran on Saturday that killed Supreme Leader Ali Khamenei and plunged the Middle East into a new conflict.

The strikes put nearby oil-producing Gulf Arab countries on edge as fear of escalation grew with Iran responding by launching missiles towards Israel.

Some oil majors and top trading houses suspended crude oil and fuel shipments via the Strait of Hormuz because of the attacks, four trading sources said on Saturday.    

Expert Commentary on Oil Markets and Geopolitical Risks

Helima Croft, RBC Capital's Head of Commodities Research

"The ultimate oil price impact of today's military action will likely hinge on whether the IRGC folds in the face of the aerial onslaught or if it pursues further escalatory actions to appreciably raise the costs of Washington's second regime change operation in a little over two months."

"It is our understanding that regional leaders warned Washington about the contagion risks of another confrontation with Iran and indicated that $100+/bbl oil was a clear and present danger."

"We would also note that all of this is taking place against a backdrop of minimal OPEC shock absorbers. In our view, every OPEC+ producer is essentially maxed out with the sole exception of Saudi Arabia. Hence, the barrel impact of any headline OPEC+ increase tomorrow will be limited by the lack of actual production capabilities."

Jorge Leon, Senior Vice President and Head of Geopolitical Analysis at Rystad Energy

"Alternative infrastructure in the Middle East can be used to bypass the Strait's flows, but the net impact remains an effective loss of 8-10 million bpd of crude oil supply," in a global market that uses about 100 million bpd.

"Nations with strategic petroleum reserves may take action and release volumes if the disruption of the Strait risks being extended. Unless de-escalation signals emerge swiftly, we expect a significant upward repricing of oil at the start of the week."

Energy Analysts at Eurasia Group

"Oil prices will rise sharply when markets open. Should the conflict continue into Sunday, oil prices are likely to respond by increasing by $5-10 above the current $73 baseline, based on Iran's claim to have closed the Strait of Hormuz and the disruption in tanker traffic."

Energy Analysts at Barclays

"Oil markets might have to face their worst fears on Monday. As things stand right now, we think Brent could hit $100 (per barrel), as the market grapples with the threat of a potential supply disruption amid a spiralling security situation in the Middle East."

Vishnu Varathan, Head of Macro Research, Asia ex-Japan, Mizuho, Singapore

"A broader state of spots of regional attacks/instability may be par for the course - in line with Iran's warning. Oil prices are likely to remain elevated as production and passage remain prone to attacks and disruptions. OPEC may be under pressure to raise production to try and offset. But a 10-25% premium on oil is not outlandish - even without a blockade of the Strait of Hormuz, which is easily a 50% premium risk event."

Christopher Wong, Strategist, OCBC, Singapore

"The strike raises geopolitical risk premia as markets head into Monday's open. The immediate reaction function is fairly predictable: safe-haven assets such as gold are likely to see an upside gap, while oil prices may also firm on supply-disruption concerns. Risk assets and high-beta currencies ... could face an initial bout of volatility, particularly if headlines suggest potential retaliation or regional spillovers."

Nick Ferres, CIO, Vantage Point Asset Management, Singapore

"Energy is still inexpensive. That's the obvious sector that rallies on Monday. And gold."

Reporting and Compilation

(Reporting by Scott Murdoch, Tom Westbrook and Rae Wee; Additional reporting by Scott DiSavino, Timothy Gardner, and Rishabh Jaiswal; Compiled by Vidya Ranganathan; Editing by Rod Nickel, Andrea Ricci, Cynthia Osterman and Christopher Cushing)