Crude oil prices gapped higher on Sunday night as they reopened after the weekend. Investors scrambled to cover shorts and get long after the joint US-Israeli attacks on Iran on Saturday, which led to the death of Supreme Leader Ayatollah Ali Khamenei and several of his key officials. Iran has responded, launching missiles across the region with attacks on Israel, Dubai, Bahrain and Qatar, amongst others.
Front-month WTI soared 10% in early trade, coming within sight of $75 per barrel. It then pulled back sharply over the next two hours, before steadying above $69. From there, it pushed higher again before profit-taking came in around $73.
Is this a knee-jerk overreaction to the attack, or a sensible response to the US-Israeli action which puts the whole of the Middle East, and potentially the rest of the world, in danger?
Source: TN Trader
As far as traders are concerned, the Strait of Hormuz is key, as this is a potential chokehold for the delivery of around 20% of the world’s crude oil and natural gas from producers to consumers.
If Iran manages to blockade the Strait or disrupt traffic through it for any length of time, then oil prices may rally further. But should any disruption prove short-lived, then prices could easily reverse and fill the chart gap made on Sunday.
It’s no secret that President Trump wants low oil prices, as these not only affect the price of a gallon of gas but also help to temper inflation. If the Iran issue is contained, then, over the long term, lower oil prices could result. But should this turn out to be a drawn-out military engagement, then all bets are off.
It’s hardly worth mentioning, but on Sunday, OPEC+ agreed to a production increase of 206,000 barrels per day for April. This was its first increase in three months, and slightly above expectations of a 137,000 barrels per day rise. It does send a signal suggesting that producers have the capacity to increase output should there be problems with supply.
