Crude oil prices have hit a four-month high of $117 a barrel. Investors have been anticipating more money printing, while mounting fears of an Israeli attack on Iran's nuclear facilities in the next few weeks have fuelled worries over supply shortages. Military action could close the Strait of Hormuz, through which a fifth of global oil supplies pass every day. Riots elsewhere in the Middle East have also caused supply jitters.
Early this week prices eased amid speculation that the US would release some oil from its Strategic Petroleum Reserve (SPR). An SPR release would counteract any shortfalls in global supply and temper the rise in petrol prices, which is squeezing consumers.
What the commentators said
Oil's demand and supply fundamentals look bearish. The shortfall caused by sanctions on Iran has been made up by higher production elsewhere, said Capital Economics. And with growth unlikely to revive, the markets' focus will return to "the deterioration in economic conditions" that made "additional stimulus necessary in the first place". Demand continues to fade.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So the latest price surge is due largely to concern over Iran and the "extraordinary" price spike everyone assumes would happen if armed conflict erupts, said Javier Blas in the FT. But the consensus, as so often, could well be wrong. Following an attack, "we wouldn't be surprised if the initial impulse were a smaller-than-expected and briefer-than-expected oil price spike, followed by a stronger-than-expected oil price decline", said Colin Fenton of JPMorgan.
Why? Because Western states could order a massive release of strategic reserves, while an attack would damage global confidence, weakening demand, and hence prices. Note that in 1991 oil slumped by $11 in a day just after the first Gulf War began as reserves were released.
And while oil prices jumped by 5% shortly after September 11th, three months later they were 25% lower as the wider economic impact of the attacks became obvious. The history of the Middle East and oil prices, said Blas, "should serve as caution against jumping on the bulls' bandwagon".
-
8 of the best properties for sale near ski slopesThe best properties for sale near ski slopes – from a luxury cabin in Geilo, one of Norway’s premier ski resorts, to a large chalet in Valais, Switzerland
-
Cash hoarders take total UK savings to £2 trillion – why aren’t we investing?Investment-shy Brits are hoarding huge amounts of cash in their savings accounts. We look at the case for saving versus investing.
