I wasn’t planning to talk about oil today.
For the past two weeks, we’ve seen WTI crude prices slide precipitously on a slew of bearish news, from a potential government shutdown that was averted at the last minute to the EIA’s latest bearish oil numbers that seemed a little too suspicious.
And for two weeks, oil prices sold off sharply.
Then, like you, I woke early on Saturday morning to the horrific news of Hamas’ massive offensive against Israel and the subsequent declaration of war. The stories and videos that came pouring out of the chaos were utterly devastating, and if one thing holds true, it’s that this conflict is far from over.
By Monday morning, the spike in oil prices that we all knew was coming took place. As I write this now, WTI crude is trading for $86.50 per barrel, while Brent is threatening to push past $90 per barrel.
Make no mistake: Geopolitical volatility is one hell of a driver of crude oil.
However, the reasons why aren’t as straightforward.
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All Eyes Are Focused on the Israel-Hamas Conflict
On paper, there isn’t much oil consumption from Israel. At just about 236,000 barrels per day, it ranks 51st in the world.
With its western coast backed against the Mediterranean Sea, it’s not a vital supply hub for global oil trade. While it’s true that Israel ordered Chevron to halt gas production at the Tamar field off its northern coast, that was more of a safety measure than anything else — those operations are well within rocket range of the Gaza Strip.
The geopolitical volatility stems from much greater implications in the region.
And in this particular case, I’m talking about Iran.
Despite denying any involvement, Iran IS the reason Hamas is what it is today. Iran funnels hundreds of millions of dollars to the group every year, not to mention the weaponry support it also receives.
It’s a proxy war like others that have played out in that region of the world for decades.
One thing you can be sure of is that given the enormity of these latest attacks, escalation is inevitable.
You can bet this is going to get worse before it gets better.
And unlike the Gaza Strip, Iran is a major player in global oil markets. From a production point of view, the country’s output is only around 3 million barrels per day; that’s only a little less than half of what is pumped out of the ground in Texas on a daily basis but still good enough to make it the seventh-largest producer in the world.
That’s close to its production capacity too, which is just shy of 4 million barrels per day.
However, the danger isn’t losing Iranian supply. Iran’s oil industry has been under U.S. sanctions for years, which means most of that oil is already being sold on the black markets.
No, the real threat to the world’s energy security — and the reason why oil prices rise on geopolitical tensions of this magnitude — is because of Iran’s close proximity to the Strait of Hormuz, where roughly one-third of total seaborne oil trade passes through every day.
Right now, you’re just seeing a few nerves get rattled in the oil markets.
When this conflict escalates dramatically in the coming days, you may see real fear hit.
Until next time, Keith Kohl A true insider in the technology and energy
markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new
technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the
Managing Editor of Energy & Capital, as well as the
investment director of Angel Publishing’s
Energy Investor and Technology and
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