As Monday progressed, what was described as a nightmare scenario for the global energy market began to emerge. One of Saudi Arabia’s largest oil refineries has halted production after an Iranian drone attack, and attacks on the country’s infrastructure have led Qatar to halt production of liquefied natural gas.
At the same time, shipping traffic through the vital Strait of Hormuz has more or less come to a complete standstill due to skyrocketing insurance premiums and warnings of possible Iranian attacks on the ships trying to evade.
Nevertheless, at around $80 per barrel, oil is still trading well below many analysts’ expectations.
These are the reactions on the oil market According to SEB commodities analyst Bjarne Schieldrop, the fact that the situation has not become more dramatic is probably because many investors are looking back to the 12-day war between Iran and Israel last summer.
Oil prices then rose sharply, but quickly fell again when Iran decided to limit its counterattacks to Israeli targets and US bases in the region.
– It is expected that there will be fierce fighting for a week now, and then it will subside, there will be a little talk and then it will calm down, says Bjarne Schieldrop.
However, he sees the danger that the effects of the current conflict are being underestimated.
– The lesson for Iran here is that if they do the same thing they did last summer, it will only be six months before the US comes and attacks them again.
Even Thina Saltvedt, energy analyst at Nordea, is surprised that the movements have not become larger, but believes that many people are still hoping that the Strait of Hormuz is not officially closed and the traffic stop will not be extended.
– Iran has not officially closed the Strait of Hormuz, but the security situation makes it difficult to let ships through. In practice it is almost closed, she says.
The strait that connects key refineries in the Persian Gulf with the rest of the world was more or less empty of ships on Monday. Traffic data shows fishing boats and tugboats occasionally moving in the area, while freighters gather in transit on either side of Hormuz’s narrowest point.
– They can’t hit back against Iran and Israel as hard as they get hit, but they may not need to hit as hard to have a big impact. They only attacked three small boats this weekend and traffic is already at a standstill, says Bjarne Schieldrop.
The OPEC oil cartel has increased its production quotas in response to the crisis, but the increase is seen primarily as symbolic.
“The market cares more about whether barrels can be moved than about supply capacity on paper. If flows through the Gulf are blocked, additional production will be of limited help,” Jorge Leon, head of geopolitical analysis at research house Rystad Energy, wrote in a commentary.
A quarter of the world’s oil is transported through the Strait of Hormuz
Source: S&P Global Commodity Insight. Graphic: DN.
While the oil price surprised with relatively mild reactions, the movements on the gas market were significantly stronger. European gas prices rose by a maximum of around 28 percent. According to an analysis by Goldman Sachs, a prolonged blockage of the Strait of Hormuz could result in more than doubling of current price levels.
Although customers in Asia are primarily affected in the short term, according to Thina Saltvedt, it has an impact on Europe.
– If the gas from Qatar is now blocked and does not come to the market, China will compete with Europe, for example, for the liquid natural gas available from the USA or North Africa, she says.
A difference between oil and gas is that the oil is easier to transport and store. This means that many countries have strategic oil reserves that can serve as a buffer if prices rise. Instead, gas is primarily stored between seasons.
The seasonal effect can be felt on European soil, where gas reserves are now at almost 30 percent. That is around 8 percentage points less than a year ago. In Germany and France, gas stocks have fallen to around 21 percent.
– Natural gas reserves in Europe are currently very low. They thought it wasn’t a problem, and that wasn’t the case before the crisis, but now there is a much greater burden in this area, says Bjarne Schieldrop.
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