Oil: Prices remain elevated amid war risks – Rabobank

Oil prices have climbed to their highest level since April, with markets weighing the prospect of renewed escalation in the US-Iran conflict after the US midterm elections, according to Rabobank's Senior Macro Strategist Bas van Geffen. Possible strikes by the US, Israel and coalition forces against Iran and the Houthis, alongside associated attacks on Gulf countries, underpin Rabobank strategists' higher forecasts for refined product prices and expectations of persistent energy inflation.

Energy prices find support from war scenarios

"But all eyes are increasingly turning to the US midterm elections next week, and the risk of renewed escalation of the US-Iran war after the polls have closed. Oil prices rose to the highest level since April as evidence builds of possible new US strikes on Iran."

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

"As our global and energy strategists write, we assume the US, Israel, and a broader Arab and European coalition are likely to attack Iran and the Houthis and to defend Saudi Arabia. If such an escalation happens, Iran and the Houthis would probably attack the Gulf countries and potentially Egypt. This fighting could last until the end of 2027Q1 at varying intensity."

"That will contribute to elevated oil prices. Our main concerns remain diesel and marine fuel oils. Between the wars in Iran and Ukraine, nearly 12% of the world's refining capacity for making gasoline, diesel and other fuels is offline."

"Inventory declines will be even steeper if we see double escalation in Russia-Ukraine and the Middle East, and it looks like the only path forward to lower prices and rising inventories is double de-escalation in both Russia-Ukraine and the U.S.-Iran wars. This is the basis for revising our refined products forecasts higher."

"So, energy inflation is bound to stay high for some time. President Lagarde admitted that inflation will stay well above target in the coming quarters."

(An Artificial Intelligence tool assisted in producing this article, which was reviewed by an editor. Find out more.)