What would be the impact on the oil market if a major oil-producing country like Iran were to have a direct conflict with Israel?
UBS emerging market strategists, including Sunil Tirumalai, believe that if Iran's oil supply is affected by conflict or US sanctions, the price of the international benchmark Brent crude oil will rise by about $10 from the current price, breaking through $100 per barrel.
Furthermore, UBS also assessed the impact of rising oil prices on emerging market stock markets in their report. Analysts found that oil price increases driven by the supply side usually have little impact on emerging market stock markets; however, once the oil price breaks $90, it will also have a negative impact on emerging market stock markets.
Iran's supply disruption could cause Brent oil prices to exceed $100 per barrel.
UBS stated that Brent oil prices have already risen by about 20% this year, driven by factors such as geopolitical crises, and US oil has risen by 18%.
Even before the conflict between Iran and Israel, due to strong demand from countries like China and weak Russian oil supply, the global oil market's supply deficit reached 900,000 barrels per day in the second quarter of this year.
Now, Iran and Israel are on the brink of a potential conflict, and the US plans to impose stricter sanctions on Iran, adding more risks to oil supply.
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As one of the main oil-producing countries in the Middle East, Iran's crude oil production is about 3.2 million barrels per day, accounting for about 3% of the global oil market. According to UBS calculations, any disruption in Iran's crude oil supply due to sanctions or affected oil facilities could cause Brent oil to break through $100 per barrel.
Supply-driven oil price increases are not conducive to the performance of emerging market stock markets.
Analysts also pointed out in the report that the current oil price increases driven by the supply side are not favorable for the performance of emerging market stock markets.Analysts, citing historical data, write:
Oil price increases driven by demand generally have a positive correlation with emerging market stocks, with returns rising along with oil prices (as strong global economic growth also boosts profit margins). However, if the rise in oil prices is caused by a shortage of oil supply, the impact may be negative when crude oil prices are at higher levels (above $90 per barrel).
Analysts also emphasize that oil price increases driven by the supply side will increase short-term inflationary pressures, making it less likely for the Federal Reserve to lower interest rates, and will support the US dollar's exchange rate against emerging market currencies. These factors will all drag on the performance of emerging market stock markets.
However, UBS also found that in the Asia-Pacific region, it typically takes an average of three months for increased input costs to affect profit margins. Looking at industries, sectors such as chemicals, metals, mining, and energy are likely to see improved profit margins due to rising oil prices, while the consumer sector, with relatively lower pricing power, is more negatively impacted by rising oil prices.
In terms of countries, emerging market countries with the highest proportion of the energy sector in the total market value of stocks, such as Brazil, Thailand, and Poland, are the most hopeful to benefit from rising oil prices.
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