Geopolitical risks are becoming harder for oil markets to ignore, with the potential for an “October surprise” escalating amid tensions involving Russia, Iran and OPEC's spare capacity strategy, according to RBC.
The Canadian bank expects OPEC+ to agree on another modest supply increase, likely around 137,000 barrels per day, at its next meeting on 5 October.
However, analysts argue that the true level of spare capacity is shrinking fast, and any further supply disruption could tighten balances rapidly.
“Given that many producers, excluding Saudi Arabia, have essentially hit their production ceilings, future OPEC+ supply increases will be materially lower than the announced headline numbers,” the broker said in a note.
The report flags growing risks in Ukraine, where drone strikes have already taken 20% of Russia’s refining capacity offline. Analysts also note that the Trump administration may be more tolerant of Ukrainian attacks on Russian energy infrastructure and could increase sanctions pressure, despite inflationary risks.
On Iran, RBC sees a heightened probability of Israeli strikes following the reimposition of UN sanctions and Tehran’s lack of compliance with nuclear inspections. Meanwhile, China’s stockpiling of crude is viewed as a strategic hedge.