From the eve of the holiday to today, the trend of A-shares has already captured the hearts of the world, and the entire market is also filled with an optimistic and upward atmosphere. At the same time, the crude oil market is also surging, mainly due to the addition of new variables to the Middle East "powder keg"!

Since the end of September, due to the intensification of concerns that Israel may launch an attack on Iran's energy infrastructure, the WTI oil price has risen by more than $5 per barrel, from $66 to over $75, and even broke through $77 this week.

However, the logic of the high point is untenable: on the morning of the 8th, on social media platforms, there was news that the Israeli Air Force attacked Iran, but according to verification, as of now, no mainstream media and reliable sources have confirmed this matter, so the increase was quickly erased.

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Although it was just a feint, this wave of growth has made the increase in crude oil futures from the end of September to now expected to exceed 10%, but what surprises many market observers is that, considering the recent series of major geopolitical events, a mere 10% increase seems somewhat sluggish.

Energy analysts question whether the crude oil market is too optimistic about the risk of the Middle East conflict expanding, especially considering that the consequences of the conflict may disrupt the flow of oil in this major export region. After all, Iran is a member of OPEC and holds an important position in the global oil market. It is estimated that if Israel targets Iran's oil facilities, up to 4% of the world's supply may be at risk.

Goldman Sachs said that a sustained decline in Iranian production could drive oil prices up by $20 per barrel, while Swedish bank SEB warned that in extreme cases, oil prices could rise to more than $200 per barrel.

In the view of some analysts, the reason why the growth of crude oil prices is still within a controllable range and has not risen further is that the oil market is still in a short market - this refers to a trading strategy where investors hope to profit when the value of assets decreases.

Carr Energy Path Chief Strategy Officer Jeff Currie said last Wednesday, "It's not just the oil market, there are also a large number of short positions in crude oil stocks. Overall, investors do not like this field and are worried about an oversupply of oil next year.""But it further stated, 'When we look at the situation today, it is quite different. Currently, crude oil inventories are low, the curve is lagging, demand is average, and the situation is not very good, but now there is (China's) economic stimulus plan, and OPEC is still cutting production.'"

He added, "In addition to this, we also take into account potential conflicts in the Middle East that could disrupt some energy facilities, so the near-term outlook is optimistic, which is why the front end of the curve is strong, but the back end is dragged down by concerns about oversupply of oil."

Is the market heavily bearish?

Amrita Sen, founder and head of research at Energy Aspects, agrees with the above view and believes that "the market is heavily bearish, and we have never seen such record short levels before. Many oil traders seem to have taken a bearish stance, and market participants also tend to expect the OPEC+ group to increase oil production later this year. The market has just fallen into this bearish sentiment, but if the market continues to be bearish, we may soon exceed $80."

In fact, the fundamentals of oil prices are hardly completely optimistic. The biggest fluctuation in oil prices last week occurred on Thursday (October 3rd), when oil prices surged by more than 5% after U.S. President Biden commented on the possibility of Israel taking retaliatory action against Iran after the country launched a ballistic missile attack earlier this week.

When asked whether the United States would support Israel in striking Iranian oil facilities, Biden replied, "We are discussing this issue: I think it's a bit (indefensible) anyway, but nothing will happen today."

However, Tamas Varga, an analyst at oil broker PVM, said last Thursday that, given geopolitical concerns, the oil market is pricing in some risk premiums, which is why oil prices are rising from stable to higher, U.S. stocks are weakening, and the dollar is strengthening. However, unless there is a substantial impact on oil supplies from the Middle East or traffic through the Strait of Hormuz, these concerns will be greatly alleviated in the coming days.

The Strait of Hormuz, located between Iran and Oman, is a narrow but strategically significant waterway connecting Middle Eastern crude oil-producing countries with major global markets. According to China Securities, the average oil flow through the strait in the first half of 2023 was 21 million barrels per day, accounting for about 21% of global oil liquid consumption. Industry insiders warn that any closure of the Strait of Hormuz would be a turning point for the global oil market and the world economy.

Varga further stated that, in this case, fundamental factors would once again become the driving force, and these fundamental factors are not optimistic.

Israeli Prime Minister Netanyahu promised last Tuesday to respond to Iran's ballistic missile attacks with force, insisting that Tehran would "pay the price" for what he called a "big mistake." Netanyahu made the above remarks shortly after Iran fired nearly 200 ballistic missiles at Israel.The Iranian President stated during his visit to Qatar on Thursday that Iran "is not seeking war with Israel." However, he warned that Tehran would respond forcefully to any further actions by Israel.

SEB's Chief Commodity Analyst, Bjarne Schieldrop, said last Thursday that, considering the many high-risk factors, oil prices have been surprisingly stable. This is certainly related to short covering.

Schieldrop further stated that Brent crude oil prices have essentially fluctuated between $80 and $85 over a period of about 18 months, then fell below $70 in September. He considers the recent rise in this oil contract to be "very insignificant," especially considering the "potentially disruptive situation in the Middle East."

However, there are also institutions that are bullish on oil prices: Daan Struyven, co-head of Global Commodities Research at Goldman Sachs, said last Friday that it is estimated that if Iran's daily production continues to decline by 1 million barrels, then oil prices will reach a peak increase of around $20 per barrel next year. This conclusion was drawn without the premise of OPEC+ taking measures to increase production. If the production increase by OPEC+ major members such as Saudi Arabia and the UAE offsets some of the production loss, then the oil market may see a slight increase of less than $10 per barrel.

Tension + impressive data, has the oil price watershed already appeared?

In fact, since the beginning of the Israel-Palestine conflict on October 7 last year, the disturbance to the crude oil market has been limited, and oil prices are still under pressure due to increased production in the United States and weak demand in China.

However, this sentiment may change recently. Iran's recent ballistic missile attacks on Israel have intensified tensions in the region. In recent days, industry observers have sounded the alarm, warning that supplies "will face a real threat."

According to foreign media, Saul Kavonic, a senior energy analyst at MST Marquee, pointed out that 90% of Iran's crude oil exports come from Kharg Island, which could become a target. Although Kharg Island is just a small island in Iran, it is one of the world's large crude oil export ports.

According to the Ministry of Commerce citing local Iranian media reports, from March to August 2024, Iran's crude oil and fuel oil exports amounted to $19.5 billion. Iran's former Oil Minister Oji previously stated that Iran is exporting crude oil to 17 countries, including European countries. According to foreign media reports in mid-August, Iran has shipped crude oil to new export destinations such as Bangladesh and Oman.

More worryingly, this may be the beginning of a larger-scale conflict, and this conflict may be imminent and could affect transportation in the Strait of Hormuz.Other analysts also indicated that if Israel were to strike Iran's oil industry, a disruption in the supply through the Strait of Hormuz would become a concerning issue. Iran has previously threatened to disrupt shipping through the Strait of Hormuz if its oil industry were to be impacted — although Iran has never actually implemented such a measure.

The Strait of Hormuz, located between Oman and Iran, is a crucial passageway through which approximately one-fifth of the world's daily oil production passes, according to data from the U.S. Energy Information Administration. This strategically significant waterway connects crude oil producers in the Middle East with major global markets.

Fitch's BMI stated in a report published last Wednesday: "In the event of a full-scale war, Brent oil prices could soar above $100 per barrel, and any potential closure of the strait would threaten prices of $150 per barrel or higher; although the likelihood of a full-scale war remains 'relatively low,' the risks of missteps by either side are now increasing."

Although some industry analysts believe that if Israel targets Iran's oil infrastructure, OPEC+ has enough spare production capacity to compensate for the interruption of Iran's exports, the global spare oil production capacity is still largely concentrated in the Middle East, especially in Gulf countries, which may face risks if a larger-scale conflict escalates.

In addition to tensions in the Middle East, U.S. economic data also supports oil prices. The market was expecting the Federal Reserve to initiate a rate-cutting cycle, with two more rate cuts expected this year. The U.S. non-farm employment data for September exceeded expectations at this time!

The U.S. non-farm employment data for September was reported at 2.54 million, while the market consensus was 1.4 million; the unemployment rate for September was 4.1%, expected to be 4.2%, and average hourly wages reached 4%, while the expectation was 3.9%. Overall, the U.S. non-farm employment data for September greatly exceeded expectations, which clearly declared that the U.S. economy remains strong, and capital should not leave, which is undoubtedly favorable for oil prices!

Another point of interest is the attitude of hedge funds:持仓 data from the U.S. Commodity Futures Trading Commission (CFTC) shows that in the week of September 24, speculators' net long positions in NYMEX WTI crude oil increased by 28,703 contracts to 161,928 contracts. Previously, in the week of September 10, speculators' net long positions had already fallen to 105,024 contracts, setting a historical low.

In these two weeks, the market's net long positions increased by about 60%. Clearly, the increase in net long positions indicates that with significant changes in the Middle East situation, investors are betting again on further increases in crude oil prices, which inevitably fills one with curiosity about the future trend.

In conclusion, all commodities have their ups and downs, and facing so many uncertainties, the fact that oil prices have not skyrocketed suggests that the forces behind the scenes are very complex. However, it can be affirmed that uncertainty means risk, and if any financial friends wish to invest in crude oil, it is advised to think twice before acting!