Oil markets 'feel a lot tighter' than only weeks ago: Vitol's Muller

Oil markets "feel a lot tighter" than only weeks ago following the increased fighting between Israel and Iran and its proxies, Mike Muller, head of Vitol Asia, told a podcast on Oct. 6.

“The energy industry is deciding what premium to place on the risk of disruption to critical oil and gas supply infrastructure,” he said on the Gulf Intelligence Daily Energy Markets podcast Oct. 6. “Suddenly a lot of the oil markets, including diesel, kerosene, gasoline, and crude oil feel a lot tighter than they did a few weeks back.”

Top Iranian military officials said Oct. 4 that Tehran would target Israel’s gas fields, oil refineries and power plants if attacked, stepping up its warnings while energy markets continue to rally on the regional tensions.

Energy markets have been on high alert after Iran launched a volley of missiles on Israel on Oct. 1 in retaliation for the killing of Hezbollah leader Hassan Nasrallah and IRGC Deputy Commander Abbas Nilforooshan in Lebanon. Iran fired about 180 missiles at Israel on Oct. 2 and has warned that more may follow.

Platts, a part of S&P Global Commodity Insights, assessed November JKM spot LNG cargoes at $13.23/MMBtu on Oct. 4, up 3.89% from the previous day. Dated Brent rose to $79.39/b on Oct. 4, the highest since Sept. 2, the data also show.

The Persian Gulf region is a vital source for around a fifth of global oil exports, as well as Qatari LNG. Inventories of oil on water and on land have declined, and Libya supply had been disrupted for more than a month until a resolution on Oct. 3, Muller said. Fewer ships are using the Bab al-Mandab Strait to the Red Sea as Iran-backed Houthi rebels in Yemen continue their attacks on tankers.

“The oil market is convinced that the trend is now downward supply in the fourth quarter and in 2025,” Cristof Rühl, a senior research scholar at Columbia University’s Center on Global Energy Policy, said on the podcast. “The geopolitical premium is keeping it above where it used to be but with a downward trend.”

Disruptions to both Israel and Iran's energy infrastructure would have an impact on global markets. Iran sends much of its crude volumes to China, despite heavy US sanctions. Egypt is reliant on Israeli gas imports and would have to import LNG cargoes from elsewhere should Israeli gas networks be disrupted.

But Rühl said whatever happens in the oil market will be transitory, pointing to the spare capacity in the oil market. OPEC alone holds close to 6 million b/d of its capacity offline, he said.

Iranian crude exports had been largely unaffected by the crisis so far, but Commodity Insights reported on Oct. 4 that Iran had seemingly suspended its seaborne crude exports ahead of a potential Israeli attack.

“It is really a potentially explosive situation,” Rühl said. “That will overshadow everything else.” Longer term, the outlook is “not bad”, he said, pointing to economic recovery and stabilization in China and the upcoming US presidential election that will soon “clear up uncertainty” over who will be in the White House as of next year.