Oil prices to remain ‘benign’ despite Iran tensions: Morgan Stanley

Oil prices jumped by more than 2% yesterday in response to rising tensions within the vital Strait of Hormuz shipping route in the Middle East, but Morgan Stanley does not expect this to contribute to a higher long-term oil price.

The seizure of a British oil tanker last week by Iranian forces in the Strait of Hormuz is the latest act of hostility to take place in the narrow channel of water that separates Oman and Iran, which passes a fifth of the world’s oil supply.

A series of attacks on international vessels have been reported in the Strait over the last two months, while the UK detained a tanker carrying Iranian oil off the coast of Gibraltar at the start of July.

While fears around supply disruptions have boosted oil futures in the aftermath of these incidents, Morgan Stanley expects non-OPEC supply growth to keep crude prices relatively subdued over the coming months.

Martijn Rats, global oil strategist at the investment bank told CNBC that fears around possible disruptions as a result of rising tensions in the Middle East have been overstated.

“The history of fear around the Strait of Hormuz suggests that from time to time, this concern can flare up and we can have some disruptions but they rarely last for very long,” he said.

“There is a difference in the oil market this time around because non-OPEC is simply growing so fast. That is the real game changer and that’s why the price action is relatively benign.”

Earlier this month, OPEC projected non-OPEC crude supply would rise by more than 2 million barrels per day this year, with much of this supply coming from booming production in US shale fields.