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Middle East tensions to support oil prices in near term

Recent developments in the Middle East region

Share on Facebook April 3, 2015, Reporter : Trend, Reader : 574


April 2 By Aygun Badalova - Trend: Recent developments in the Middle East region are likely to support global oil prices in the near term, analysts from the US JP Morgan bank believe.

“Since the Iraqi crisis in 1H2014, geopolitical risk has risen again following recent developments increasing broader concerns about the stability of the region,” analysts said in an oil market report, obtained by Trend.

They also mentioned that in response to the recent events in Yemen oil prices have moved higher with Brent and WTI front-month future prices, trading near $59 per barrel and $51 per barrel respectively.

Yemeni oil production has declined from around 300,000 barrels per day (bpd) kbd in early-2011 to 145,000 bpd in 2014, according to the analysts.
Of that amount, crude oil production of 125,000 bpd is primarily exported through the Marib oil pipeline. Following the unrests, the flow from this pipeline has been shut down completely.

“Given market oversupply, which we assess close to 1.7 million bpd for 1Q2015, this is a small loss of less than 0.2% of global oil production,” analysts said.

An international military operation kicked off on March 26 in Yemen against the Iran-backed Shiite group - Ansarullah, with involvement of the armed forces of a number of Arab states led by Saudi Arabia.

Iran denies accusations that it gives military assistance to the Shiite group.

Yemeni President Abed Rabbo Mansour Hadi managed to escape Sanaa and house arrest at the hands of the Shiite rebels on Feb. 21. Houthi Shiite rebels have taken control of several cities and are assaulting the port of Aden, where Hadi had been based before fleeing to Riyadh.

JP Morgan’s analysts believe that a more material impact on production can be expected if the conflict extends into other Arab nations, particularly Saudi Arabia that borders Yemen on its north.

In analysts’ view, the likelihood of a wider and prolonged conflict within Yemen is high but they see a relatively muted probability of the conflict spreading to other nations given the rapid pace and military power involved in the operation.

Overall, analysts believe that recent developments are likely to support prices in the near term.

“However, we assume minimal impact on production and exports from the Middle East Gulf nations,” they said.

According to the analysts’ latest forecasts, Brent average price will amount to $59 per barrel in 2015 and $62 per barrel in 2016. WTI price is forecasted at $52 per barrel in 2015 and $54 per barrel in 2016.

Aygun Badalova is Trend Agency’s staff journalist, follow her on Twitter:@AygunBadalova

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