Energy Volatility Persists in Middle East

Summary

Karen Young discusses the outlook for energy markets amid Middle East tensions. She expects continued oil price volatility, with potential temporary spikes above $100, driven by low inventories, the risk of supply disruptions in the Strait of Hormuz and via Houthi attacks on Saudi export routes, and a dim prospect for a durable US-Iran agreement. The chaotic US-Saudi nuclear deal talks and the fragile regional security backdrop add to the uncertainty.

• Oil prices are expected to remain volatile with possible temporary spikes above $100 per barrel.
• Global oil inventories are depleted, limiting the ability to cushion a major supply disruption.
• Strait of Hormuz traffic has not fully normalized, and the Houthis threaten Saudi exports via Yanbu and the Bab El Mandeb.
• A real obstruction in key chokepoints could require multiple and potentially insufficient inventory releases.
• China’s oil demand is down by about 4 million barrels per day, with uncertain rebound timing.
• A lasting US-Iran nuclear deal appears unlikely in the near term, prolonging geopolitical risk.
• The US-Saudi nuclear agreement talks have created chaos and may not directly calm energy markets.