Oil Set to Rise for Third Week as Middle East Fighting Gets Worse
Synopsis
Oil is on its way towards a third consecutive week of increases despite falling slightly on Friday. The reason why is quite straightforward: investors are frantic with fear about the Israel-Iran war that began…
Oil is on its way towards a third consecutive week of increases despite falling slightly on Friday. The reason why is quite straightforward: investors are frantic with fear about the Israel-Iran war that began a week ago. No one has any idea when this debacle will be over, and that's sending everyone into a tizzy about oil supplies.
Brent crude, the key international oil price, dropped roughly $1.57 to $77.28 a barrel on Friday morning. But overall for the week, it's still up nearly 4%. American oil prices surged even higher, with some contracts rising more than 1% as investors attempt to determine what is next.
The big worry is that this fighting could mess up oil shipments from one of the world's most important regions. Iran pumps out about 3.3 million barrels of oil every day, making it the third biggest producer in OPEC. That's a lot of oil that the world needs to keep running.
Supply Chain Fears Drive Market Volatility
What's actually got traders spooked is the Strait of Hormuz, a skinny channel off Iran's coast. There are as many as 18 and 21 million barrels of oil that go through there each day. If that path is plugged or becomes too risky for vessels, it'd be a catastrophe for international oil supplies.
Phil Flynn of The Price Futures Group described it quite succinctly: "Oil prices are high because of doubled tanker rates and tankers avoiding the Strait of Hormuz." Essentially, it's becoming more costly and hazardous to ship oil around, so the price increases.
The battle raged on intensively on Thursday when Israel attacked Iran's nuclear facilities, and Iran retaliated with drones and missiles. This came after Iran struck an Israeli hospital overnight. Neither party appears willing to give in, with Israeli Prime Minister Netanyahu vowing that Iran's leaders will incur the "full price" for their actions.
Trump's Two-Week Decision Window Adds Uncertainty
President Trump has taken two weeks to make the decision of whether America will enter this battle. That White House announcement last Thursday has put oil markets in another layer of concern. No one has any idea what Trump will do.
IG analyst Tony Sycamore believes Trump's "two-week deadline" may be just a bluff. He has threatened with similar deadlines previously, which did not result in much action. Even if Trump fails to act, oil prices are likely to remain high since the uncertainty itself is sufficient to keep traders edgy.
The entire episode indicates how rapidly events can unfold in oil markets. A week of battles in the Middle East has already driven prices substantially higher, and there is no obvious end in sight.
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