The expert explained the sharp fluctuations in oil prices
The sharp decline in the price of Brent crude oil to $89.6 per barrel was the result of a reassessment of military risks amid news from the Middle East. Andrey Loboda, a member of RASO and a top manager in the field of financial communications, told Izvestia on March 10.
According to him, in the morning oil prices rose to almost $119 per barrel. The increase was attributed to reports of the closure of the Strait of Hormuz, U.S. and Israeli strikes on Iran, and the threat of supply disruptions from the Persian Gulf. At this point, market participants began to price in a scenario of a significant reduction in Middle Eastern oil exports.
However, the situation changed during the day. There have been signals about a possible de-escalation of the conflict and discussions about the use of strategic oil reserves by major countries.
"This dramatically lowered panic expectations, and the so—called military premium in price began to decrease rapidly," Loboda said.
Market factors also had an additional impact. After the rapid growth, investors began to take profits, some long positions were closed, and algorithmic trading systems increased sales after the breakdown of key levels. As a result, in a few hours, the oil price passed through the almost thirty-dollar range.
The expert stressed that such fluctuations in oil prices have a direct impact on the global economy. Oil remains a key resource for transportation, industry, and energy, so its cost affects inflation, logistics costs, and economic growth rates.
According to Loboda, persistently high oil prices raise the costs of companies, increase inflationary pressures and force central banks to maintain tight monetary policy for longer. This slows down investment and consumption, especially in countries that depend on energy imports.
In the coming months, the main factor for the oil market, according to the expert, will remain geopolitics. Currently, quotes are under the influence of two opposing forces: the fundamental balance of supply and demand and military risks in the Middle East.
Loboda believes that if the current tension persists, oil can move in a wide range from about $85 to $120 per barrel of Brent. The lower limit will be formed against the background of news about de—escalation and the use of strategic reserves, and the upper limit will be formed with the intensification of conflict or threats to supplies from the region.
"Oil exporting countries have several tools to stabilize the market in such situations. First of all, it is the coordination of production and the adjustment of production volumes in order to balance supply. In addition, diplomatic signals and declarations of readiness to intervene in the event of sharp price fluctuations play an important role. Sometimes joint solutions with large consumer countries, including the use of strategic reserves, are used to smooth out the imbalance. All this makes it possible to temporarily reduce market tension, however, in conditions of serious geopolitical conflicts, such measures only smooth out fluctuations, but do not eliminate the source of instability itself," the expert concluded.
On the same day, Brent crude oil for May delivery was trading at around $89.6 per barrel on the London ICE Exchange. The price, as of 5:54 Moscow time, decreased by 3.2%, according to trading data.
Alexander Schneiderman, head of Alfa-Forex's customer support and sales department, told Izvestia on March 4 that the escalation of the conflict over Iran had thrown the oil market off balance, but the scenario of a sharp price spike to $100-120 per barrel has not yet been realized. According to him, the geopolitical premium is already partially embedded in the quotes. In the short term, the base price range for Brent crude oil is in the range of $80-85 per barrel.
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