Iran has always provided a shock element to the global crude market, often spooking the market with histrionics linked to disruption in supplies, thanks to overarching intransigence on the nuclear deal. But for a change, Iran is now proving to be a reassuring prospect even as clouds are gathering over the Ukraine conflict, causing much discomfort to the market operatives even as prices are hovering around the century mark.

The volatile run on the back of escalating Russian tensions, despite an apparent conciliatory tone by Putin on the crucial troop deployment along Ukraine borders, coupled with murky Libyan supply outlook, has received some reassurance from Iran’s continuing nuclear talks, which is balancing off to some extent persisting concerns over Eastern Europe.

Developments in Eastern Europe will be crucial for the global oil market as Russia is one of the biggest crude oil producers with a capacity of about 11.2 million bpd. Any disruption of oil flows from the region would send Brent and WTI prices skyrocketing higher far above $100, in a market struggling to supply the increased demand for crude as economies recover from the pandemic.

Advancing talks between the US and Iran regarding a possible nuclear deal, which would see Iranian crude return to the marketplace, are keeping prices in check. Market players are aware that Iran is among the few sources of incremental supplies available that can help meet demand and calm prices, so the outcome of the talks is critical. Analysts believe an additional 1 million bpd of crude production could reach the market in a complete lifting of sanctions, but the jury is still out as the next news from the political gambit in Vienna is awaited. In this context, President Biden’s reassurance to Saudi Arabia last week has brightened the chances of a deal.

Directives from the White House to American citizens in Ukraine to depart in the next 24 to 48 hours as the threat of war escalates has sent chills through the crude market. Both the oil and stock markets have strongly reacted to this turn of events although Russia continues to maintain its stance that they are not going to declare any war against Ukraine. At the same time, strong comments from US diplomats supporting Ukraine and NATO in every possible way continue to fuel speculation of a full-blown war between Russia and the NATO forces in the near future.

The key worry is that the threat of war and disruption can send prices spiralling higher as the oil market is on edge, looking for clues. Given the current tight situation in the crude markets, further disruptions to oil supply could arguably not happen at a worse time.

Oil analysts are looking at different scenarios of a price splurge. A price range between $70 and $100 per barrel, for instance, is expected to lead to a significant upsurge in output in the fourth quarter of 2022, while a prolonged run of $90-$100 per barrel would result in a further increase to the already recovering rig activity from the second quarter of 2022.

Looking beyond 2023, $100 WTI will allow the industry to average at an annual growth of about 960,000 bpd, from the fourth quarter of 2021 through to the fourth quarter of 2025. A $70 world will still allow for a sustainable growth cycle, but the average annual pace is seen limited to about 560,000 bpd.

In a $100 per barrel scenario, a gradual deployment of additional rigs would materialize from the second quarter of this year, driven by both private operators and public independent producers. A fundamental shift in the operational philosophy of public exploration and production is emerging, with many responding to a global call on tight oil growth.

Energy consultants Rystad Energy predicts that up to 2.2 million barrels per day of US tight oil could be unleashed in the event of a supercycle – with oil prices remaining around or above $100 per barrel – driven by growing demand and continued supply tightness.

High oil prices are encouraging operators to increase production as supply from sources outside the US remains tight. Global Covid-19 concerns are waning and countries are removing or relaxing restrictions, causing a surge in demand for oil that the current supply would struggle to meet. In addition, geopolitical uncertainty in major exporting countries is worsening, threatening to disrupt trade flows amid already limited availability.

All these indicate further building up of pressure points in support of still higher prices and anything over $100 per barrel would mean unmitigated disaster for consuming countries like India.

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