Short positions in oil have reached record levels. If the Strait of Hormuz is closed, a risk premium in oil prices may emerge, leading to a surge in prices. Additionally, oil prices are supported by global easing cycles, increasing inventories, and low positioning and valuation.

As tensions in the Middle East escalate, Goldman Sachs states that oil prices have yet to incorporate the geopolitical risk premium, indicating further upward potential.

According to CCTV news, on September 28, local time, Hezbollah in Lebanon confirmed the death of its leader, Nasrallah. Following the attack on Nasrallah on the 29th, Israeli Prime Minister Netanyahu stated for the first time that there is no place in Iran or the Middle East where Israel's "long arm" does not reach, and they will continue to fight against Israel.

Analysts suggest that Nasrallah's assassination marks a significant escalation of Israel's rapid offensive against Hezbollah over the past two weeks, which could evolve into a full-scale regional war.

Brent crude oil jumped in response, briefly reaching $72 per barrel and currently reported at $71.98, with a daily increase of 1.25%.

Geopolitical Risks

The conflict between Hezbollah and Israel is intensifying, with both sides having previously fired rockets at each other, raising concerns about a larger conflict in the Middle East. On September 28, Hezbollah confirmed that its leader Nasrallah died during an Israeli airstrike on Beirut, Lebanon's capital.

The escalating tensions in the Middle East could pose a threat to global oil supply. As a result, WTI crude has increased nearly 1%, closing above $68 per barrel, while Brent crude has risen to around $72.

Data Source: uSMART SG

Goldman Sachs analyst Lina Thomas has identified four short-term positive drivers for the oil market: 1) Global monetary policy easing; 2) Ongoing depletion of crude oil inventories; 3) Low positioning and valuation in the oil market; 4) The oil market has not yet accounted for significant geopolitical risks.

Another Goldman Sachs analyst, Lindsay Matcham, believes that further escalation of the conflict could have major market impacts, especially if it involves the potential closure of the Strait of Hormuz, which could lead to soaring oil prices.

Concerns About Supply Increase

Although geopolitical issues affect oil prices, the long-term trend will still depend on market supply and demand balance. Recently, there have been significant changes in the supply side, with Saudi Arabia and Libya potentially increasing production.

Reports suggest that Saudi Arabia plans to abandon its $100 oil price target and will increase production later this year to capture more market share.

What will be the trend of oil prices? As the impact of interest rate cuts fades, demand remains a key issue.

Vanda Insights' Vandana Hari told Bloomberg: “Crude oil prices may temporarily enter a consolidation phase, solidifying last week's gains. However, as the effects of interest rate cuts dissipate, prices will largely be digested, and traders will quickly shift their focus back to the demand side.” Hari noted: “The market euphoria from the Federal Reserve's significant rate cuts has boosted sentiment. However, at some point, as the Fed's influence wanes, the oil market will refocus on the deteriorating demand situation, and we may see downward pressure on oil prices again.”

How to trade investments on uSMART:

After logging into uSMART SG APP, click "Search" from the upper right corner of the page, enter the target code, such as "WTI", and enter the details page to learn about transaction details and historical trends. Click "Trade" in the lower right corner and select "Buy/Sell" "Send" function, finally fill in the transaction conditions and send the order; the image operation instructions are as follows:

Source: uSMART SG

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