$100 oil? Traders are betting on disruption in the Middle East

For months, oil traders have shrugged off any threat of a supply shock in the Middle East, betting on reduced demand from China and the West along with hopes for increased output from OPEC+. Bearish sentiment dominated the global market in late summer and early fall. But this week, the oil market faced a rude awakening after Iran launched several waves of ballistic and hypersonic missiles against Israel, sending bears scrambling and prices jumping above $75/bbl.

The war that is spreading in the Middle East is coming as Israel did he vowed a “painful” response. to Iran’s attack earlier in the week. Brent prices rose 4.5% in the past three days, likely to make further gains as Prime Minister Benjamin Netanyahu may use stealth fighter jets to neutralize the export capabilities of the Islamic Republic’s oil infrastructure.

On Tuesday, Helima Croft, head of global commodity strategy at RBC Capital Markets, joined CNBC’s “The Exchange,” informing the hosts and audience, “There’s been a lot of complacency about this war,” adding, “We have to think. about a scenario where Iranian oil supplies are at risk.

Citigroup analyst Francesco Martoccia told clients that any IDF attack on Iran’s export capacity could cut 1.5 million barrels of crude oil per day from the global market overnight. He said a minor attack on energy infrastructure, such as downstream assets, could knock out 300,000 to 450,000 barrels of daily production.

For energy research offices, it is unclear how the IDF will respond to Iran. Scenarios include striking the energy infrastructure of high-value military assets and nuclear sites.

Bloomberg provided readers Thursday morning with a detailed map showing Iran’s main energy facilities, including oil and gas fields, pipelines, refineries and storage terminals:

Source: Bloomberg

We tend to agree with Ross Schaapp, head of research at GeoQuant, who told CNBC’s “Squawk Box” on Wednesday that Israel may try to cripple Iran’s ability to export oil. As they say, “follow the money”…and if Israel wants to neutralize Iran in terms of crippling financial networks, it starts with its crude oil export abilities.

GeoQuant’s Schaapp noted that any IDF attack on Iran’s energy infrastructure would cause Brent prices to rise “dramatically”.
Brent’s implied volatility gauge rose to its highest level in nearly a year this week. In the options markets, a rise in Brent call options shows traders are expecting $100/bbl.

Bloomberg noted on Wednesday: “The equivalent of nearly 27 million barrels of $100 Brent calls traded by 11:20 a.m. in New York, while more than 7 million barrels of U.S. crude oil calls changed hands.”

Meanwhile, Bloomberg Intelligence analyst Henik Fung told Terminal users: “Traders canceling short bets could push crude oil prices higher with a wider war risk premium,” adding: “WTI could retest $80 a short term”.

Scott Shelton, energy specialist at TP ICAP Group Plc., noted, “The odds are against a material loss in production, but when it comes to geopolitics, it’s always a difficult issue.”

The world is waiting for Israel’s response. A leading energy research office pointed out to us on Wednesday that it is almost guaranteed that Israel will retaliate against Iran. The big question is: what will the IDF planes hit?

By Zerohedge.com

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