Oil: What prolonged Mideast tensions mean for energy market
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While the reported Israeli airstrikes against Iran have shaken up the equity market on Friday (^DJI, ^IXIC, ^GSPC), oil prices (CL=F, BZ=F) are surging higher on these escalations.
Yahoo Finance senior business reporter Ines Ferré comes on Market Domination to further explain what this conflict means for the oil market and whether this could push Iran to close the Strait of Hormuz.
To watch more expert insights and analysis on the latest market action, check out more Market Domination here.
You've got the oil uh angle. We see, have been seeing this surge in oil prices. What are we seeing now? What are you hearing in terms of commentary?
Yeah, uh, Julie, what we're hearing now is really that risk is the story when it comes to oil prices. You are seeing oil up 8% right now after that Iranian retaliation on Israel. But the question here is how long will this last? How long will this conflict last? Some analysts are saying that this appears to be a little bit different than other attacks in the past because this isn't just a one-off. This could really last a long time and the word act of war has been mentioned. So the question is whether other countries will be dragged into this and or if the Strait of Hormuz will be closed down. That's where 20 million barrels per day of oil products go through that area. But analysts are saying that they don't anticipate that Iran will do that because that would irritate one of their biggest customers, which is China. So it's not in Iran's best interest to do that. Also, no oil infrastructure in Iran has been targeted that we know of yet. So Iran is the third largest producer among OPEC, the fourth among OPEC plus, more than 3 million barrels of oil per day that they produce, about 1.8 million barrels per day of risk are at risk of not being exported. But analysts are saying, look, even if we do see these extreme scenarios where we're looking at oil at triple digits, you are still going to see it coming down because of uh more production outside of shale and also just simply because of demand destruction. Uh because you will start seeing demand destruction if oil gets high enough.
So that implies then that this upside would be kind of limited if we look over the longer term, right, Denise?
That's right. Limited upside, and in fact, uh, JP Morgan and also Goldman Sachs, uh, they have talked about higher oil prices in these extreme scenarios, but they're still seeing Brent coming down into the 60s in their base case. Of course, a lot is depending on what happens with this conflict.