USOI - Attacks On Israel Introduce Tail-Risks To Oil Prices
2023-10-10 05:00:00 ET
Summary
- The cross-border attacks on Israel have reverberated through financial markets, causing notable impacts on the energy sector.
- The escalating conflict has likely decreased the chances of near-term normalization in Saudi-Israeli relations.
- Persistently high oil prices could drive inflation, affecting both stocks and bonds.
By Hakan Kaya, PhD
Dynamics in the energy market are likely to shift dramatically.
At the outset, our thoughts and sympathies go out to those affected by the shocking attacks in Israel.
This past weekend, we witnessed a severe escalation of tensions in the Middle East, marked by the most serious cross-border attacks on Israel in decades. These unsettling events have reverberated through financial markets, causing notable impacts on the energy sector.
Before these developments, the ongoing talks around normalization between Saudi Arabia and Israel were a key market focus, given their potential implications for oil production. Saudi Arabia had reportedly expressed a willingness to boost oil production if crude prices remained high. This was part of a complex deal, brokered by the U.S., that aimed for Saudi Arabia's recognition of Israel and a commitment to increased production. The talks were under close scrutiny by investors, as any increase in Saudi production could have helped alleviate high oil prices.
However, the recent attacks have dramatically shifted these dynamics. The escalating conflict has likely decreased the chances of near-term normalization in Saudi-Israeli relations. This could potentially affect Saudi oil production plans, leading them to extend their existing cuts for a longer period, which could further deplete already low global oil inventories.
Another significant player in the global energy market, Iran, is also expected to see a major shift in U.S. policy. Before the attacks, the U.S. had adopted a softer posture toward Iran, allowing it to approach pre-2018 levels of oil production. However, given recent events and Iran's known support for Hamas, the U.S. may adopt a stricter stance, potentially leading to a reduction in the Iranian oil supply.
These developments underscore the real and potentially harmful risks presented by geopolitical uncertainties. Persistently high oil prices could drive inflation, affecting both stocks and bonds. In these uncertain times, assets sensitive to geopolitical events could serve as a potential hedge. In particular, we believe the energy sector, which is intrinsically linked to geopolitics, may offer an opportunity.
That said, the implications of recent events are only beginning to emerge, and we will watch closely in the coming weeks for signs of potential direction and impact for commodities and the broader financial markets and economy.
This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting, or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice, or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor's individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness, or reliability. All information is current as of the date of this material and is subject to change without notice. The firm, its employees, and advisory accounts may hold positions of any companies discussed. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. This material may include estimates, outlooks, projections, and other "forward-looking statements." Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.
Discussions of any specific sectors and companies are for informational purposes only. This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. The firm, its employees, and advisory accounts may hold positions of any companies discussed. Specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. It should not be assumed that any investments in securities, companies, sectors, or markets identified and described were or will be profitable. Any discussion of environmental, social, and governance ((ESG)) factor, and ratings are for informational purposes only and should not be relied upon as a basis for making an investment decision. ESG factors are one of many factors that may be considered when making investment decisions.
Commodity futures and forward contract prices are highly volatile, and the commodity markets can also lack sustained movements of prices in one direction, whether up or down, for extended periods. Participation in a market that is either volatile or trendless could produce substantial losses. Price movements of commodity interests are influenced by, among other factors: changing supply and demand relationships; governmental, agricultural, and trade programs and policies; climate; and national and international political and economic events. None of these factors can be controlled by the manager.
Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.
This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.
The "Neuberger Berman" name and logo are registered service marks of Neuberger Berman Group LLC.
© 2009-2023 Neuberger Berman Group LLC. All rights reserved.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Attacks On Israel Introduce Tail-Risks To Oil Prices