Although the Second World War ended and an era of peace ushered in, regional conflicts and hotbeds of war were present every now and then, even though they had limited impact in economic terms. Today's situation is different. We are facing three hot spots of war (Russia-Ukraine war, Israel-Gaza war, Iran-Israel attack, and the expected reactions), which seem not only to threaten global peace but have caused economic and financial crises with domino effects, making it difficult to predict the developments of the world economy. For this, it is enough to remember the consequences of the pandemic or the Russian attack on Ukraine. Now a new hotbed, the Israel-Gaza war and now the Iran-Israel war are causing the immediate increase in the price of oil. In fact, every time regional war breaks out, market developments analyze the parameters of three basic commodities: oil, gold, and the US dollar.

In this article, we will try to answer the questions related to the forecasts for the increase in the price of oil, which also affects other goods. Will the rise in prices and inflation resume due to these developments? What monetary policies should be employed etc.?

AN OVERVIEW OF THE 2024 OIL PRICE FORECAST

After the Russia-Ukraine war and the expansion of the conflict in the Middle East, the issue of oil prices has returned to the center of attention. For this, two concepts for the types of oil must be understood. "Brent" and "WTI" are two terms used to indicate two types of oil and the respective standards that follow the trend of crude oil prices. For both indices, the reference value is the cost of oil per barrel. "Brent" is the reference index for the Middle East, Europe, and Africa, while "WTI" (West Texas Intermediate) is a mixture of different types of oil produced in the United States, therefore it represents the American market. They are really separate concepts, but very integrated as influences, and all experts in the field view them as two communication vessels.

Forecasts for the price of oil in 2024 were calculated by the best experts of prestigious institutions in the world, based on various factors such as the current progress of the conflicts in Ukraine and the Middle East, the related sanctions from the European Union and the United States, and periodic meetings of organizations such as OPEC+ etc. At last year's meeting, OPEC+ members convened to discuss possible changes in collective production. The Organization of the Petroleum Exporting Countries and its allies agreed to reduce the production of "black gold" by a total value of about 2.2 million barrels. These cuts, which today seem far from reality, could worsen further in the event of an escalation of the conflict in the Middle East, especially in the case of the involvement of Iran, the world's third-largest oil producer. At that time, this event was predicted, but the probability of it happening was considered not high, but it had to be taken into account. In the event of escalation, the OPEC+ countries predicted a serious shock to the supply of oil in the world market. 

According to "Goldman Sachs," if Iran did not enter the game, total global availability would be reduced by about 20%. Despite this, the experts of this institution thought that the conflict between Israel and Hamas would not have a significant impact on the price of oil. But one of the most widespread oil price predictions for 2024 is that the price will rise. Some analysts were predicting a quick return to $90 a barrel even before Iran's reaction began. Goldman Sachs, in July 2024 using its forecasting models, expected the price of Brent to stabilize around $95 per barrel. JP Morgan's estimate is slightly more optimistic for the price of oil in 2024. A few months ago, JP Morgan asserted that the price of Brent would never reach $100 per barrel, barring exceptional geopolitical events that, unfortunately, have happened. Despite the conflict in the Middle East, JP Morgan's Brent price forecasts have so far turned out to be more accurate than Goldman Sachs. According to one of the most specialized experts in oil price forecasting, Natasha Kaneva, head of global material research for multinational companies, the oil price will remain stable at $83 per barrel and then decline in 2025. She predicted this price in December 2023 and was confirmed by February this year. But…

According to the latest estimates published by Bank of America, Brent crude will remain stable in 2024, despite the fact that OPEC+ has reduced global supply since 2022 and is likely to continue to do so next year. Francisco Blanch, head of the BoA commodities and derivatives price research sector, expects a Brent price of $90 a barrel and WTI steady at $86, making him a much more accurate forecaster than many other international institutions.

As recently as a November 2023 interview, Citibank's Edward L. Morse expected Brent to end 2023 at $76 a barrel. Morse underlined the potential volatility of energy markets due to the political instability of some producers such as Iran, Iraq, Nigeria, Libya, and Venezuela, and the importance of considering new sanctions against Russia. These were some of the most serious predictions made about the price of oil at the end of last year, and today's researchers consider them valid for analyzing the current situation.

THE EFFECTS OF REGIONAL CONFLICTS ON THE CURRENT PRICE OF OIL

The price of WTI crude oil could potentially surge this week due to escalating tensions in the Middle East, possibly reaching recent highs of $87.5 a barrel. Following last week's closing, there is anticipation for another increase in the price of WTI crude oil. The market's reaction at the opening of the stock exchange next week will be crucial, especially in light of the possibility of further escalation of the conflict in the Middle East.

Based on technical analysis data up to April 15, 2024, it appears that there is clear upward momentum pushing towards the intermediate resistance level of $87.5 per barrel, with a potential target of $88. If this level is surpassed, and depending on unfolding developments, a return to the price of $90 per barrel would not be surprising.

These analyses help us assess the extent to which the price of oil will be influenced by speculation versus market demand and supply. Specialists generally agree that the oil market has not yet shifted entirely towards speculation but is rather driven by investors. Consequently, they attribute the price increase, in addition to supply decreases, to additional costs associated with the product. The primary additional cost is transportation. If Western countries ensure transportation through conventional routes, where 80% of the oil passes, I personally believe that the price of oil will stabilize at €90 per barrel in the coming months.

Since the Albanian market sees minimal activity in the stock market, distinguishing between investors and speculators can be challenging for many. Speculators thrive on frequent and significant price fluctuations to capitalize on profits, whereas investors prefer stability and consistent price movements based on underlying costs. Currently, the market appears to have absorbed the impacts of regional conflicts and has implemented measures to curb speculation for opportunistic gains. While speculation exists in all markets to some extent, countries are making efforts to regulate the energy situation and, particularly, oil prices.

A similar trend can be observed in the gold market. During times of uncertainty, such as during wars, there is often a surge in demand for safe-haven assets like gold. Despite recent geopolitical tensions, gold prices have yet to surpass the $1,300 mark per ounce in the last two days. This suggests that, until now, the markets have adapted to the effects of local conflicts and potential reactions from Iran.

However, these forecasts should not diminish the importance of maintaining vigilance in economic and financial policies, particularly in monetary policy, given the potential for unexpected developments in the Middle East. The expansion of conflicts in this region, coupled with its close connection to oil markets, can trigger domino effects and increase external influences on our economy. Therefore, it is crucial for policymakers to remain vigilant and adaptable to rapidly changing circumstances.

*Prof. Dr. Anastas Angjeli is an academician, economy expert, former Minister and MP, founder and president of the Mediterranean University of Albania