Major escalation in Middle East conflict! Goldman Sachs: Oil prices have not yet factored in geopolitical risks

Wallstreetcn
2024.09.29 02:03
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Short interest in oil is currently holding a record-sized position. Once the Strait of Hormuz is closed, the risk premium for oil prices may arrive, leading to a surge in oil prices. In addition, oil prices are also supported by a global loose cycle, inventory increases, positions, and valuations at low levels

The situation in the Middle East suddenly escalated, with Goldman Sachs stating that the oil price has not yet factored in geopolitical risks, leaving room for further upside.

According to CCTV news, on September 28th local time, Hezbollah in Lebanon confirmed the death of its leader Nasrallah. On the 29th, after Nasrallah was killed, Israeli Prime Minister Netanyahu made his first statement, saying that in Iran or the Middle East, there is nowhere beyond the reach of Israel's "long arm," and they will continue to fight with Israel.

Analysts believe that Nasrallah's killing marks a significant escalation in Israel's rapid expansion of attacks on Hezbollah in the past two weeks, which could evolve into a full-scale regional war.

Brent crude oil prices surged, briefly touching the $72 mark, and are now trading at $71.98 per barrel, with an intraday increase of 1.25%.

Crude Oil Market Not Pricing in Geopolitical Risks, Focus on the Situation in the Strait of Hormuz

Goldman Sachs pointed out that currently, the crude oil market has not priced in significant geopolitical risks, while being supported by multiple positive factors.

In a recent report, Goldman Sachs analyst Lina Thomas analyzed that the recent crude oil market is being driven by four positive factors: the global economy entering an easing cycle, inventories still increasing (expected future supply shortages), positions and valuations remaining low, and the market not factoring in geopolitical risks.

This means that supported by the above factors, oil prices still have room to rise.

Goldman Sachs analyst Lindsay Matcham also stated in the latest report that if the conflict escalates to the closure of the Strait of Hormuz, oil prices may start factoring in a risk premium:

"We believe that further escalation of the conflict could have a significant impact on the market, especially if it involves the potential closure of the Strait of Hormuz, which could lead to a surge in oil prices here."

With investors increasing bearish bets, the net short position in the crude oil market has now reached a record high, and the escalation of geopolitical risks has increased the risk of a short squeeze in oil.

Matcham mentioned:

"As tensions escalate between Hezbollah and Israel, we will continue to closely monitor the conflict in the Middle East."

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