mju24

Paula mentioned the attack of the Iranian natural gas pipeline which had completely gone below my radar (https://apnews.com/article/iran-pipeline-explosion-israel-hamas-war-gaza-tensions-791cc5831f0df8c764c311484822913d). This--paired with the recent U.S. attack against the Houthis in Yemen on Saturday--shows that conflict with Iranian proxies is not quite over yet (https://www.bbc.com/news/world-middle-east-68395173). Still, Paula and I agreed that the Washington Post article provides a strong basis for why the U.S. is still highly unlikely to attack Iranian facilities.

Paula's straightforward analysis helped me re-evaluate my own projections. With March 31st just around the corner, it seems less likely that some of these more extreme scenarios of anything going above $110 could happen, especially as a ceasefire seems increasingly probable in the Israeli-Hamas conflict. As such, I've adjusted some of these percentages accordingly.

Additionally, the failed Houthi attack against a Gulf of Aden oil tanker on Saturday did not spook marketplace analysts (https://www.foxnews.com/world/houthis-nearly-strike-oil-tanker-gulf-aden-us-coalition-forces-take-out-way-attack-drones). Actually, the current price is floating at roughly $80.44 at the time of this submission (https://www.marketwatch.com/investing/future/brn00?countrycode=uk). I feel more confident by raising my projections of "less than $90" after pairing these events with Paula's rationale. 

Paula and I had a productive conversation as to why we were optimistic/pessimistic about the possibility of a ceasefire at the current moment.

One recent update that has increased my probability percentage came from National Security Advisor Jake Sullivan who stated, " an understanding of the 'basic contours' of a hostage deal and temporary ceasefire had been reached." (https://www.bbc.com/news/world-middle-east-68396335). Now, Paula told me that an agreement on "basic contours" does not necessarily guarantee a ceasefire. However, with the onus seemingly on Hamas instead of Israel to agree on these terms, a bit of optimism is earned as PM Netanyahu has typically been averse to declaring any support for a ceasefire (https://www.npr.org/2024/02/25/1233795421/jake-sullivan-us-israel-gaza-hamas-hostage-deal-ceasefire). 

The statement from this NPR article stating, "Sullivan said he hopes all sides can come to a 'firm and final agreement on this issue' sometime in the 'coming days.'" also inspires some confidence that some pause could occur in the near-future, much less before December 1st (https://www.npr.org/2024/02/25/1233795421/jake-sullivan-us-israel-gaza-hamas-hostage-deal-ceasefire). Even if Hamas turns down the Paris proposal, the idea that the "basic contours" have been agreed to means that it is a lot easier to move onto an alternative solution with some slight modifications rather than starting from scratch. 

Despite a lack of progress in securing a ceasefire with talks falling about and proposals being vetoed, signs still point towards a potentially positive outcome in the months to come. 

President Biden on Feb 8th stated, "I'm pushing very hard now to deal with this hostage cease-fire because, as you know, I've been working tirelessly in this deal." This was followed up with "I've made the case - and I feel very strongly about it - that there has to be a temporary ceasefire to get the prisoners out, to get the hostages out. And that is underway. I'm still hopeful that that can be done."

It is true that the U.S. veto of an Arab-backed UN Resolution calling for an immediate ceasefire does not inspire much hope at the current moment when analyzed alone (https://apnews.com/article/un-israel-palestinians-gaza-ceasefire-resolution-vote-350c86ef261bf1a00a2515cf22764de5). However, the news of the potential Paris ceasefire deal--a continuation of the mediation talks in Cairo--would make the UN veto seem justifiable if the U.S. is waiting for the best possible terms for a ceasefire (https://www.npr.org/2024/02/23/1233356379/israel-hamas-gaza-ceasefire-negotiations-paris-netanyahu-day-after). Such a deal would include a six-week pause in fighting, smaller concessions for prisoner swaps, and no guarantees that Israel will withdraw from the Gaza strip. This would likely be more palatable to the Israeli government at the moment. 

Additionally, the existence of Netanyahu's post-war plans for Gaza suggests that a ceasefire may be likelier so the Israeli government could enact these policies (https://www.cnn.com/2024/02/23/middleeast/netanyahu-unveils-future-post-hamas-gaza-plan-mime-intl/index.html). While this proposal, which includes the complete demilitarization of Gaza, may be unrealistic, it is a starting point that a temporary ceasefire could emerge from. 

As of this forecast, I remain confident in keeping to my previous percentages due to the current status of the conflict in the Middle East and the most recent projections of this market by other experts.

According to Deutsche Bank analysts, they predict Brent Crude Oil will reach a high of $88 per barrel by the end of 2024 (https://oilprice.com/Latest-Energy-News/World-News/Deutsche-Bank-Sees-Brent-Oil-Price-at-88-by-the-End-of-2024.html). They follow this with, “We look for continued OPEC+ discipline in a nearly balanced market for H1, and seasonal strength in H2.” (https://oilprice.com/Latest-Energy-News/World-News/Deutsche-Bank-Sees-Brent-Oil-Price-at-88-by-the-End-of-2024.html). Even with ongoing disruptions in the Red Sea and the Israeli-Hamas War, this projection trusts in OPEC+ to adapt with appropriate instead of extreme price shifts. 

With the Brent contract for April--which is past the date of this forecast--set at $83.67 a barrel, it shows that even with a tightening market, most projections don't foresee any rise above $90 in the near future (https://www.cnbc.com/2024/02/22/crude-oil-prices-today.html). The predicted demand of 2.2 million bpd is still expected to outpace production with production growth outside of OPEC which is estimated at 1.2 million bpd (https://www.cnbc.com/2024/02/16/crude-oil-today.html). Still, the forecasts seem appropriate considering what is likely to occur from now to March 31st. 

Iran and the U.S. seem unlikely to engage in this kind of conflict as there has been a noticeable absence of actions that would suggest this escalation would happen. 

Following the U.S. retaliation against Iranian proxies for the Jan 28th drone attack which killed 3 U.S. Servicemembers, there have not been subsequent major escalatory attacks that would warrant any significant forecast changes. Indeed, the Washington Post reported "Iran, eager to disrupt U.S. and Israeli interests in the Middle East but wary of provoking a direct confrontation, is privately urging Hezbollah and other armed groups to exercise restraint against U.S. forces, according to officials in the region." It goes on to add, "But in private, [Iranian] senior leaders are urging caution, according to Lebanese and Iraqi officials who were briefed on the talks. They spoke to The Washington Post on the condition of anonymity to discuss the sensitive conversations." (https://www.washingtonpost.com/world/2024/02/18/iran-proxies-middle-east/)

As the U.S. continues its efforts to achieve a ceasefire between Israel and Hamas, it would not be optimal for the U.S. to engage in conflict with either Iran or its military proxies if it wants to secure peace in the near future. Even as the U.S. continues criticizing Iran for escalatory actions--for instance, allegedly providing Russia with ballistic missiles--it does not seem as if military action will accompany this intense diplomatic rhetoric (https://www.reuters.com/world/iran-denies-providing-ballistic-missiles-russia-2024-02-23/).  

Ali Alfoneh--a senior fellow at the Arab Gulf States Institute--stated, “The Biden administration partially called the Islamic Republic’s bluff by harshly reacting to the killing of three American servicemen and women in Jordan, but publicly signaled that it would not target Iranian territory." (https://www.arabnews.com/node/2465036/middle-east). I am inclined to believe this take based on what recent history has shown. 

The probability remains the same for now even post-conversation with Jeenou. Originally, I considered raising it to 15% considering any major response from the Iranian side post-bombing of Hamas members in Lebanon (https://www.timesofisrael.com/iranian-fm-any-major-escalation-in-lebanon-will-mark-netanyahus-last-day/). However, no major statements or actions have occurred since.

The killing of two Hamas members in Lebanon alone does not shift the overall forecast dramatically; some attack of a greater capacity would be required for a significant change. Barring that, I maintain this current rate as some of the larger political trends have no changed dramatically since (e.g. Biden and Netanyahu's desire to limit the conflict to only Hamas).

Jennou and I's predictions were predicated on seeing how prices could shift after the new offensive in Rafah. As we've seen prices stay the same relatively despite the increase of instability near the Egyptian border, it strengthens the argument barrels will remain under $90 for the time being.

This NBC article excerpt supports some of that mindset: "Oil prices have struggled to breakout of a $10 trading range despite tensions in the Middle East. Tamas Varga, analyst with oil broker PVM, said a more significant rally would require an extreme scenario, such as direct U.S. attack on Iran, that would lead to a material disruption of crude supplies." (https://www.cnbc.com/2024/02/12/crude-oil-prices-today.html)

As the other forecast predicting a U.S attack on Iran also remains at a low 12%, that has been factored in to assume prices will likely remain less than $90.