Oil prices have remained surprisingly stable despite escalating geopolitical tensions in the Middle East, especially in the wake of significant violent incidents involving Hamas and Hezbollah leaders, Wells Fargo analysts said in a Monday note.
These events, taking place in sensitive regions such as Tehran and Beirut, have increased the risk of further regional conflicts and raised concerns about possible disruptions to global oil supplies, especially through the critical Strait of Hormuz, which is responsible for almost 21% of the global daily oil production. ask.
Historically, geopolitical events in the Middle East have been closely linked to oil price spikes as markets react to the potential threats to oil supply. However, the current situation deviates from this pattern.
Oil prices, which have fallen to the mid-$70s per barrel, do not reflect a geopolitical risk premium as was the case in previous conflicts. This muted response can be attributed to the protracted nature of the current conflict, where initial fears of supply disruptions have given way to a better understanding of the real risks involved.
According to Wells Fargo, oil markets are often highly sensitive in the early stages of such conflicts, with prices reacting sharply to news and fears of potential supply disruptions. However, as the conflict progresses, market sensitivity decreases as risks are better understood and priced in.
This desensitization is clearly reflected in the current scenario, where oil prices have stabilized despite the ongoing conflict, reflecting the true balance between global supply and demand without a significant geopolitical risk premium.
“However, investors should be aware that the risk of supply and trade disruption appears to be increasing,” the analysts said.
Analysts at Wells Fargo warn that while the market is currently underestimating the risks, any further escalation could quickly lead to a reintroduction of a geopolitical risk premium, potentially pushing oil prices up by $5 to $15 per barrel.
