Energy: Oil in focus – ING

Oil extended gains on Monday morning as Israel-Iran attacks extended to a fourth day. On Saturday, Israel temporarily knocked out a natural gas processing facility linked to the South Pars field and targeted fuel storage tanks during strikes. The attack triggered a powerful explosion and fire at the onshore Phase 14 gas processing plant and forced the shutdown of a production platform at the South Pars field, according to the semi-official Fars news agency, ING’s commodity analysts Warren Patterson and Ewa Manthey note.

Any supply disruptions can prompt OPEC to bring supply back

"The attack was concentrated on Iran’s domestic energy system, rather than exports to international markets. However, it still raises concerns over energy security and supply. On Friday, oil prices surged more than they have in three years. Iran, the third biggest OPEC producer (despite US sanctions), pumps around 3.3 million barrels a day of crude oil and exports roughly 1.7 million barrels a day. The loss of this export supply would wipe out the surplus that was expected in the fourth quarter of this year."

"However, OPEC sits on 5m b/d of spare production capacity, and so any supply disruptions could prompt OPEC to bring this supply back onto the market quicker than expected. In a scenario where we see continued escalation, there’s potential for disruptions to shipping through the Strait of Hormuz, which is the biggest fear for the oil market. This would impact oil flows from the Persian Gulf, and prices could soar further. Almost a third of global seaborne oil trade moves through the Strait of Hormuz."

"The latest positioning data shows that speculators increased their net longs in ICE Brent by 29,159 lots for a second consecutive week to 196,922 lots as of last Tuesday, the highest bullish bets since the week ending on 1 April. This was driven predominantly by new longs entering the market and the liquidation of short positions. Similarly, in the NYMEX WTI, speculators boosted their net long by 16,056 lots for the second week straight to 179,134 lots over the reporting week, the highest since the week ending on 28 January."