Rystad: Oil Prices To Remain Below $80 Despite Escalating Middle East Tensions

Rystad: Oil Prices To Remain Below $80 Despite Escalating Middle East Tensions [[{“value”:”

The Middle East is once again at the epicenter of global energy market concerns as tensions between Israel and Iran escalate, raising fears of disruptions to oil and natural gas supplies. Despite recent military strikes targeting energy infrastructure, Rystad Energy, a leading energy consultancy, maintains that Brent crude oil prices are likely to remain capped below $80 per barrel. This article explores the current state of the Israel-Iran conflict, the damage inflicted on Iranian oil and gas facilities, and the potential implications for U.S. consumers and investors.

Escalating Conflict: Israel and Iran Exchange Blows

The conflict intensified last week when Israel launched airstrikes on Iranian nuclear facilities and military targets, killing several high-ranking Iranian officials. Iran retaliated with missile attacks, some penetrating Israel’s Iron Dome defense system, striking cities and energy infrastructure, including the Haifa refinery, which was partially shut down but remains operational. Israeli strikes have also targeted Iran’s oil and gas sector, with Iranian state media reporting fires at a refinery, Tehran’s main gas depot, and parts of the South Pars gas field—one of the world’s largest natural gas reserves.

Iran’s oil ministry confirmed drone attacks on South Pars and a refinery, while Israel reportedly hit two natural gas processing facilities and an oil depot. Kharg Island, handling 90% of Iran’s crude oil exports, remains a potential target, though no confirmed strikes have occurred there yet. Iranian missile strikes on Israel’s Bazan oil refinery complex near Haifa caused localized damage to pipelines and transmission lines. Despite these attacks, no significant loss of crude oil supply has been reported, and the critical Strait of Hormuz—through which about 20% of global oil consumption flows—remains open.

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Rystad Energy suggests the conflict is likely to remain short-lived, with the U.S. playing a pivotal role in de-escalation efforts. Diplomatic initiatives are underway, including discussions at the G7 meeting and U.S.-Iran nuclear talks in Oman, though Iran has signaled reluctance to negotiate a ceasefire while under attack. Three potential outcomes loom: de-escalation through diplomacy, contained hostilities, or a broader regional conflict involving nations like Iraq, Saudi Arabia, or Qatar.

Damage to Iranian Oil and Gas Infrastructure

Iran’s energy sector, a cornerstone of its economy with exports generating $78 billion in 2024, has faced targeted strikes. The South Pars gas field, a major global natural gas reserve, sustained damage from Israeli drone attacks, though the extent remains unclear. Strikes on a refinery and Tehran’s main gas depot have caused fires, and an oil depot was also hit. These attacks threaten Iran’s ability to maintain production levels, especially given existing challenges from sanctions and underinvestment since the U.S. withdrew from the nuclear deal in 2018.

Goldman Sachs estimates that the conflict could disrupt 1.75 million barrels per day of Iranian oil supply over six months, only partially offset by increased OPEC+ production. However, analysts note that the market may have already priced in some loss of Iranian output, contributing to price stability. Iran’s reliance on Kharg Island for exports makes it vulnerable, but any attack there could provoke a severe response, potentially involving the Strait of Hormuz.

Why Oil Prices Are Expected to Stay Below $80

Despite the largest single-day oil price surge in three years, with Brent crude reaching $78 per barrel on Friday before easing to $74, Rystad Energy and other analysts believe prices will remain below $80. Several factors support this outlook:

No Major Supply Disruptions: While infrastructure has been damaged, no significant loss of crude oil supply has occurred. The Strait of Hormuz remains operational, and Iran has not attempted to block it, likely due to its own economic dependence on oil exports and pressure from China, its primary buyer.
U.S. Diplomatic Efforts: The Trump administration, keen to keep energy prices low, is pushing for de-escalation. Rystad notes that the U.S. could broker calm, as it did in the India-Pakistan conflict, preventing prices from spiking.
Market Fundamentals: Global oil markets face an emerging oversupply, with OPEC’s spare capacity and weak demand, particularly from China, exerting downward pressure on prices. Bank of Singapore forecasts Brent at $65 per barrel over the next 12 months.

However, risks remain. A blockade of the Strait of Hormuz could push prices above $100 per barrel, and a full disruption of Iranian oil could drive Brent to $120, according to Deutsche Bank. For now, markets appear cautiously optimistic that the conflict will not spiral into a broader crisis.

Impact on U.S. Consumers

U.S. consumers are already feeling the pinch, with oil prices contributing to a potential 20-cent-per-gallon increase at the pump in the coming weeks. Gasoline and diesel prices, relatively low before the conflict, may rise further if tensions persist, straining household budgets. Higher energy costs could also fuel inflation, complicating the Federal Reserve’s efforts to maintain price stability.

JPMorgan warns that sustained oil prices above $60-$65 could reverse recent cooling in U.S. consumer prices, reducing demand as households cut back on spending. The Trump administration’s goal of lowering energy costs to curb inflation may be challenged if the conflict escalates, though increased production from Saudi Arabia or other OPEC+ members could mitigate impacts.

Implications for U.S. Investors

The conflict has introduced volatility into energy markets, with investors adopting a cautious stance. Energy stocks, gold, and inflation hedges are attracting interest as safe havens, while equity markets have seen sharp reactions, such as Egypt’s stock market experiencing its worst single-day drop in over a year.

For U.S. investors, the outlook is mixed:

Energy Sector Opportunities: Upstream players like Occidental Petroleum and ExxonMobil may benefit from higher oil prices, while oil marketing companies face risks from elevated Brent levels. Investors are advised to monitor companies with exposure to Middle Eastern supply chains.
Market Volatility: The conflict, combined with domestic unrest and global trade tensions, has heightened market uncertainty. Investors are flocking to gold, which rose 1.4% to $3,433 per troy ounce, and the U.S. dollar as safe assets.
Risk of Escalation: A broader conflict involving the Strait of Hormuz or other regional producers could lead to significant losses in energy-dependent sectors like aviation, paints, and adhesives. Conversely, a swift de-escalation could stabilize markets and limit price spikes.

Conclusion

While the Israel-Iran conflict has rattled energy markets, Rystad Energy’s forecast of oil prices remaining below $80 reflects a belief in contained hostilities and U.S.-led de-escalation efforts. Damage to Iranian oil and gas infrastructure, though notable, has not yet disrupted global supplies significantly, and the Strait of Hormuz remains a critical lifeline. For U.S. consumers, rising gas prices pose a near-term challenge, while investors face both opportunities in energy stocks and risks from market volatility. As diplomatic efforts intensify, the trajectory of this conflict will determine whether energy markets stabilize or face a more turbulent future.

Energy News Beat Channel will continue to monitor developments in the Middle East and their impact on global energy markets. Stay tuned for updates.

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