Iran’s airstrike on Israel prompts banks to raise Brent price forecasts

Global banks and financial institutions have hiked price forecasts for Brent crude futures, citing supply concerns due to growing geopolitical risks.

PHOTO: Flags of Iran and Israel. Getty Images

The impending risk to oil supply due to escalating tensions in the Middle East has led several banks and financial analysts to revise up their price forecasts for Brent crude.

Iran’s latest airstrike on Israel over the weekend has heightened supply concerns in the region, with market analysts anticipating that Israel could retaliate against Iran swiftly.

Brent's price is expected to continue its upward trend amid growing tensions in the Middle East, according to analysts.

Banks raise Brent crude price forecasts

Brent futures broke above the psychological mark of $90/bbl earlier this month on the back of “tightening fundamentals,” and geopolitical risk premiums, said Morgan Stanley’s head of European oil and gas research Martijn Rats. The bank has raised its Brent price forecast for the summer season, typically lasting between April – September, by $5/bbl to $95/bbl.

The upside risks to oil are likely to lead to a supply deficit of a little over 1 million b/d in the second quarter, two analysts from ING Bank’s commodities strategy team noted. The bank expects Brent’s price to average $88/bbl over the second and third quarters of this year, $1/bbl higher than its previous projection.

“Where oil prices go next will largely depend on Israel’s response to Iran’s attack,” said the two analysts from ING Bank.

Brent’s price could “definitely spiral out of control again, towards $100/bbl,” if an unprecedented disruption to supply occurs, according to Kpler's lead crude analyst Viktor Katona. “The actual impact on supply remains uncertain, tempering the extent of the upside in Brent crude oil prices,” said Marilianna Fotopoulou, an analyst at Kpler.

UK-based research institute Oxford Institute for Energy Studies (OIES) has also raised its forecast for Brent's price to $90/bbl for the second quarter of this year, from $81.4/bbl earlier. “The consequences of Iran’s direct retaliatory attack against Israel remain unknown, but they do add a new layer of uncertainty to this month’s outlook,” OIES said in its analysis.

OIES expects Brent futures to range between $74/bbl and $99/bbl this year.

French financial services firm Societe Generale (SocGen) recently said in a note that geopolitical risk is likely to keep Brent futures above $91/bbl barrel in the second quarter of this year.

"Beyond the short-term spike induced by geopolitics, our base case for oil remains a $90 [$90/bbl] Brent through May," analysts from JP Morgan said in a note.

By Aparupa Mazumder 

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