Geopolitical situation poses serious risks to the oil market, fears over demand prevent a sharp rise in prices

The International Energy Agency (IEA) published its regular report on the oil market. Unsurprisingly, one of the main topics is the recent attack by the terrorist organization Hamas on Israeli territory. Although the attack has so far had no direct impact on physical oil flows, fears that this could happen are causing significant tension in the market. From a global perspective, more than 1/3 of the oil transported by sea comes from the region. Meanwhile, Russia is managing to withstand Western sanctions.

As the IEA notes in its oil report, following Hamas's attack on 7 October this year, the price of oil rose as soon as the market opened, by as much as 4 USD/bbl. Before Hamas's attack, the price of Brent crude stood at 84 USD/bbl.

As the report further notes, the conflict has so far had no direct impact on physical oil flows. However, the risk of this happening is immediate, given the possibility of other countries becoming involved in the conflict—for example, Iran. This risk is reflected to some extent in oil prices.

The market price of Brent crude was around 93.5 USD/bbl on 20 October. In addition to Hamas's attack, the decision by Saudi Arabia and Russia to extend voluntary production cuts through the end of this year also put upward pressure on prices. The decision is linked to the global economic outlook, with forecasts revised to reflect the expectation that higher interest rates will remain in place for longer, both in the US and in Europe. This has a negative impact on oil demand.

Demand for motor fuels in the US has fallen to its lowest level in the past two decades. These two opposing factors—the concern about supply on the one hand, and concerns about the state of the global economy and, consequently, oil demand on the other—are keeping oil prices from rising much more sharply.

Russia's oil exports

Russia's oil export revenues meanwhile rose by 1.8 billion USD to 18.8 billion USD in September. This is the highest revenue since July 2022.

The weighted average price of Russian oil is 81.8 USD/bbl, according to the IEA. Russian oil production remains high, at around 9.5 million barrels per day.