Yuanta Securities noted that despite the recent U.S. strike on Iran's nuclear facilities, international oil price volatility did not increase significantly. The company cited several reasons for this, including a global supply surplus and the fact that U.S. President Donald Trump does not want oil prices to rise. Yuanta Securities forecast the average price of West Texas Intermediate (WTI) crude oil at $71 per barrel in the third quarter and $66 per barrel in the fourth quarter.
Min Byungkyu, a researcher at Yuanta Securities, outlined four main reasons for the lower-than-expected oil price volatility in a global strategy note released on June 25: a global supply surplus and weak demand; the substitutability of Iran's oil production; the fact that the Strait of Hormuz holds its greatest value as a negotiation card; and President Trump’s opposition to rising oil prices.
First, Min pointed out, "Both the United States and the Organization of the Petroleum Exporting Countries (OPEC) are maintaining an expansionary production stance in the global oil market. In contrast, demand forecasts have weakened further. Due to preemptive demand ahead of tariff hikes, the global economy in the second half of the year is also likely to underperform expectations," highlighting issues of global supply and demand.
He also explained, "Despite (U.S. economic sanctions) embargoes, Iran remains active in the crude oil export market, and if production facilities encounter problems, it could disrupt global oil supply and demand. However, the fact that this is a recoverable volume is limiting further sharp increases in oil prices."
Iran's oil production in May is estimated at 3.36 million barrels per day, with exports at 1.687 million barrels per day. In contrast, OPEC's spare capacity, excluding Iran, amounts to 5.66 million barrels per day. He added, "The United States also has a significant capacity to ramp up production in the short term."
The third factor is that the Strait of Hormuz holds its maximum value as a negotiation card. Min stated, "The U.S. struck Iran's nuclear facilities during nuclear negotiations, leaving Iran without a bargaining chip. Ultimately, Iran's remaining option is to blockade the Strait of Hormuz, but the likelihood of an actual blockade is low." He added, "The Strait of Hormuz is also Iran's oil export route, and if it is blockaded, there is a high probability that the U.S. would intervene militarily. In that case, Iran would face the worst-case scenario, with both livelihoods and the regime threatened."
Previously, JP Morgan predicted that oil prices could surge to $120?130 per barrel if the Strait of Hormuz were blockaded. Goldman Sachs and Citigroup also projected oil prices could soar to around $100 per barrel.
Finally, Min noted, "President Trump also does not want oil prices to rise. The 2024 change of government in the U.S. (Trump's election) was largely a public backlash against high inflation, and a rise in oil prices would also be unfavorable to Trump's push for Federal Reserve interest rate cuts." As a result, the U.S. is sending signals that it does not intend to pursue regime change in Iran after the airstrike, aiming to avoid further escalation and bring Iran back to the negotiating table.
Min concluded, "For the time being, oil price volatility may resume amid a battle for face and interests, but I do not see this as a long-term shift like the Russia-Ukraine war." He forecast the average WTI price at $71 per barrel in the third quarter and $66 per barrel in the fourth quarter.
Meanwhile, international oil prices ended lower as the U.S. hinted at the possibility of easing sanctions on Iran following a ceasefire between Israel and Iran. On June 24 (local time) at the New York Mercantile Exchange, WTI for August delivery, the nearest contract, closed at $64.37 per barrel, down $4.14 (6.04%) from the previous session.
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