Rising Risks to Crude Oil Prices Raised: BCA By Investing.com

Investing.com — Risks to a price hike have increased, according to analysts at BCA Research. While BCA maintains a cyclical outlook that crude oil prices could decline over the next six to nine months, the immediate market environment is fraught with uncertainties that could support higher prices in the near term.

Geopolitical tensions, particularly escalating conflict in the Middle East, are creating supply-side risks that have jolted market participants into the possibility of a supply shock.

The recent rise in oil prices is attributed to fears that the ongoing conflict could spread to oil-relevant geographies. According to BCA analysts, Israeli officials are considering a strike on Iranian oil infrastructure, a move that would have US support.

This potential disruption comes at a time when the region accounts for a substantial share of global crude production, raising alarms that infrastructure could be targeted in future retaliatory attacks.

Despite these concerns, BCA Research notes that there is still enough spare capacity within the OPEC+ bloc to offset any temporary supply shock.

Key OPEC+ producers have held back significant output and may be willing to step in and increase production to stabilize the market.

Saudi Arabia, for example, has threatened to increase production to protect its market share, especially if other members fail to adhere to production quotas.

However, even though the potential for a supply shock is high, BCA Research points out that these short-term price increases may not be sustainable. OPEC+ has both the ability and motivation to restore pent-up production, which could offset any supply disruptions caused by geopolitical factors.

Furthermore, unless the conflict in the Middle East leads to prolonged or extensive damage to oil infrastructure, price increases may prove short-lived.

On the demand side, the BCA remains cautious, forecasting a decrease in global oil demand due to a forecast global economic recession.

They argue that while policy easing by major central banks may provide marginal support, these measures are unlikely to be enough to boost oil consumption in the short term.

China’s economic recovery, a key driver of global oil demand, is also expected to lag, further dimming the outlook for a sustained rise in crude prices.