Oil Could Surge Past $90 as Israel-Iran Clash Ignites Middle East Tensions

• Oil prices continue to rise, with West Texas Intermediate (WTI) up 7.50% to $73.18 per barrel and Brent crude at $74.56 per barrel, fueled by escalating concerns over a potential Israel-Iran conflict. Analysts warn that Brent could surpass $90 or even hit $100 per barrel in extreme scenarios.
• Goldman Sachs (GS) estimates a potential 1.75 million barrels per day reduction in Iranian oil supply for six months, partially offset by OPEC+, while a Strait of Hormuz closure could spike prices by 35%, though such an outcome is considered unlikely.
• Sustained high prices risk demand destruction and inflation, with JPMorgan (JPM) favoring a $60 – $65 range for stability, as consumer affordability could limit prolonged price surges, according to YF reporting.

Oil prices surged 7% on Friday, with West Texas Intermediate futures settling at $72.98 per barrel and Brent crude at $74.23 per barrel, though both trimmed earlier gains that exceeded 13%. The spike followed heightened tensions in the Middle East, particularly after Israel’s strike on Iran’s nuclear program, prompting fears of a broader regional conflict. Analysts from Goldman Sachs (GS), led by Daan Struyven, project that a significant escalation could push Brent crude above $90 per barrel, potentially peaking at $100 per barrel in an extreme scenario involving prolonged disruptions. This analysis, reported by YF, underscores the delicate balance of global oil markets amid geopolitical volatility.

The potential for supply disruptions drives much of the current price outlook. Goldman Sachs estimates that the conflict could temporarily reduce Iranian oil supply by 1.75 million barrels per day for six months, with only partial offsets from other OPEC+ producers. A more severe scenario, such as the closure of the Strait of Hormuz, through which 20% of global oil flows, could elevate prices by approximately 35% from current levels. JPMorgan (JPM) analysts, prior to the strikes, had warned of a worst-case Brent price of $120 per barrel, though they view such extreme outcomes, including a Hormuz closure, as unlikely. Both firms, as noted by YF, emphasize that any price surges would likely be short-lived due to the risk of demand destruction, as higher prices could strain consumers and reverse recent declines in U.S. inflation.

Market dynamics are further complicated by the broader economic context. JPMorgan’s Natasha Kaneva noted that sustained oil prices in the $60 – $65 range align better with economic stability, as higher levels could reignite inflationary pressures. Hedgeye Risk Management’s Fernando Valle, speaking to the publication, highlighted the consumer impact, stating that elevated prices would likely reduce demand significantly, leading to price reversals following initial spikes. This demand sensitivity acts as a natural ceiling on price gains, even in turbulent times.

Geopolitically, the situation remains precarious. Iran’s description of Israel’s strikes as a “declaration of war” and its subsequent drone attack on Israel signal potential for further escalation, though the extent of Iran’s response remains uncertain. President Trump’s social media post urging Iran to negotiate over its nuclear program reflects ongoing diplomatic efforts to avert a wider conflict. The interplay of these geopolitical developments with market fundamentals will likely dictate oil price trajectories in the near term.

While the immediate price surge reflects heightened risk, the broader outlook suggests caution. The oil market’s sensitivity to both supply shocks and demand constraints underscores the uncertainty surrounding the Israel-Iran conflict. As analysts monitor regional developments, the potential for prices to climb toward $90 or beyond hinges on the scale and duration of disruptions, with the $60 – $65 range remaining a more sustainable target absent extreme scenarios.

WallStreetPit does not provide investment advice. All rights reserved.

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