Synopsis:

HSBC assesses the impact of recent geopolitical events on oil prices, noting a slight decline following Iran's strike on Israel, with Brent crude dipping to just under USD 90 per barrel. The bank highlights that the market's restrained response suggests a significant level of geopolitical risk was already factored into prices. Despite potential escalations, other market dynamics are expected to maintain stability in oil prices.

Key Points:

• Immediate Price Impact: Brent crude experienced a minor decrease of about 1% to under USD 90 per barrel after the recent military actions, indicating that previous price increases had already accounted for potential risks.

• Geopolitical Tensions: Although the situation remains tense, the market's current outlook suggests that a wider regional conflict is unlikely. This perception is bolstered by Iran’s declaration that it considers its retaliatory action as concluding the matter, reducing fears of further immediate escalation.

• Oil Market Fundamentals: HSBC points to supportive fundamental factors in the oil market, estimating a supply-demand deficit of approximately 1.4 million barrels per day in the second and third quarters of the year. These conditions suggest underlying strength in the market despite geopolitical fluctuations.

• OPEC+ Dynamics: There is an increasing likelihood that OPEC+ may begin to scale back some of its supply cuts in the third quarter if high oil prices persist. This potential action, coupled with the group's upcoming meeting on June 1, could influence market dynamics and help moderate prices.

• Price Forecasts: HSBC maintains its Brent price forecast at USD 82.5 per barrel for 2024, with expectations of USD 85 per barrel in the first half of the year, and a reduction to USD 76.5 per barrel starting in 2025.

Conclusion:

HSBC's analysis suggests that while geopolitical risks continue to influence oil markets, a combination of robust market fundamentals and potential adjustments in OPEC+ supply policies are likely to keep oil prices relatively stable. Investors should closely monitor upcoming OPEC+ decisions and further geopolitical developments, as these factors will be key in shaping oil price trajectories in the near to medium term.