Due to the escalating tension in the Persian Gulf centring the Strait of Hormuz, global oil prices might witness a hike in the near future.
Oil prices inched up on Friday. Brent crude futures were up 32 cents to $63.71 a barrel, heading toward a weekly rise of two percent after it fell six percent last week.
US West Texas Intermediate crude rose 30 cents to $56.32 a barrel, a weekly gain of 1.2 percent, after falling 7.5 percent last week.
Despite an increasing trend of renewable energy use, the global economy continues to be lubricated by oil. OPEC is still one of the prime oil suppliers in the world. For any country to continue its development, a strong transportation industry is important. Transportation industry systems depend on the steady flow of oil to refineries and a break in the flow can cause havoc in the way industry operates.
The current point of tension is located at a crucial distribution channel for all transportations by OPEC – the Strait of Hormuz. Iran has seized a British-flagged oil tanker in the Strait of Hormuz, making timely deliveries a hassle. Based on the views that have come forth, it is seen that the Iranians did this to violate international regulations. This can be a major pain point for Middle Eastern countries which supply about one-fifth of the world’s oil requirements.=
Surprisingly, even with the current tensions, the oil prices have not broken the roof and the movement has been limited. It has created only a two percent rise in prices in the international markets.
Moreover, the domestic market has not been affected yet. However, the less intense reaction with this movement can also be an indication of the new emerging crude realties. In normal conditions, this incident would have been enough to put the oil markets in deep trouble, but this time it was not so. Experts on this issue have recommended waiting for some time to see the repercussions.
Due to this incident, there has been rising tension in the Mideast countries as disruptions have been created in oil supply. Downward demand and rising challenges in macroeconomic environment have capped the bullish gains on oil prices.
IEA (International Energy Agency), which regulates the global oil supply, is ready to take action to ensure that global markets do not get adversely impacted.
IEA is not expecting a significant rise in crude oil prices as there is a glut in global crude oil markets. This is basically due to the increased output and inventory in the US. But, if this issue is not resolved quickly, it may create a havoc situation. Even though this movement has not affected the Indian markets yet, it is still a bad indication for India as it imports nearly 80 percent of the crude oil. Continuation of this situation may prove to be a threat to the Indian economy also.
IEA is reducing its oil demand growth forecast due to slowdown in the global economy.
Strait of Hormuz is the major route where world’s more than half of the oil moves. Oil prices will be affected badly if tensions in the area continue to rise. This threat will affect UK petrol prices too.
Global oil prices have become volatile in recent weeks due to these tensions. If this continues, it is expected that it may prove to be a major threat to the global oil sector.