Brent crude at $115/bbl? Three factors that could fuel the rally amid US-Israel-Iran war

The US, Israel and Iran conflict has brought crude oil price on the boil. The latest jolt on the oil front came from Iraq. Operations were halted on Tuesday afternoon in Iraq's Rumaila oil field amid the escalation of conflict in the Middle East. Iraq cited the closure of the Strait of Hormuz behind the oil output cut move.

Iran said the closure caused a "shortage of tankers" in Iraq's southern ports, which led to stockpiling "reaching critical levels".

According to reports, Iraq will use its oil production for its own refineries.

BP and state-owned Basra Oil Company together carry out operations in Rumaila refinery. This oil field produces almost a third of Iraq's output.

According to a report by Union Bank, brent crude oil price could see a temporary spike toward $115/bbl before easing amid the war in Middle East. Brent crude oil price reached a peak of $85.12 per barrel, rising 10% on Tuesday as the global oil market took into account the effects of US-Israel-Iran war. 

Hormuz Strait helps carry 20% (about 20 million barrels per day) of the global oil supply. It is the main route for LNG and oil exports.       

According to the Union Bank report, oil prices remain highly sensitive to Middle East escalation, with each military flare up triggering sharp risk premiums and reinforcing energy as the primary transmission channel to global inflation and financial markets. 

The report says any disruption in the Strait directly affects 20 mbpd of global supply, with Saudi, Iraq and Asian importers (especially India and China) facing the highest immediate exposure.

However, ICICI Bank Global markets research group has a more benign outlook for brent crude. In a report, it states that the escalation is expected to continue for about a month or so with the risks of a  more prolonged war setting in, although the duration of the conflict is a bit uncertain right now.

It expects Brent Crude prices trading in the $75/bbl to $95/bbl range in the near-term with risks that oil prices could move towards the higher end of this range.

"The risks of a possible break above USD 100/bbl threshold remain in place if there is a structural disruption to oil infrastructure," added the markets research group.  

Another factor, which makes the oil situation more serious is the temporary shutdown of Saudi's oil refinery Ras Tanura after drone attack from Iran. 

The refinery, among the largest in Saudi Arabia, can process 550,000 barrels of crude oil per day. This implies removal of nearly 16% of the kingdom's refining capacity from the global market.