Oil prices unlikely to crack $100 even with Mideast conflict
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Hamas’s surprise attack on Israel and that nation’s response has led oil old-timers and analysts to draw parallels to the Yom Kippur War, 50 years ago.
That conflict’s ripple effect led to production cuts by oil-producing nations in the Middle East, an oil embargo, a surge in prices, and fuel shortages.
No one’s calling for such dramatic action in oil this time around. And one veteran strategist thinks that even if the war spilled over into the broader region, with Iran being drawn into the conflict, oil prices would still be capped at $100 a barrel.
That strategist is Ed Morse, global head of commodity strategy at Citi. He spoke to Yahoo Finance Live yesterday.
“The good news for the market is that with the cuts that have been taken, we have a good 4.5 to 5 million barrels a day of capacity in the world,” he said. “Should prices get significantly higher, and by that I mean above $100, I think we can expect that the spare capacity that has been held back particularly by Saudi Arabia, the UAE, and Kuwait will find a place in the market.”
Morse said that absent an escalation in the war, oil’s ceiling is still $100 a barrel — in part because of slower or no growth in regions from Europe to China to the US.
Another longtime energy analyst, Pavel Molchanov, thinks it’s extremely unlikely that Iran will be drawn into a war with Israel.
“It would be their biggest mistake in four decades, and I do not think the Iranian regime is suicidal,” Molchanov told Yahoo Finance Live. “So the odds that this war will have a physical effect on oil supply from the Middle East is very low.”
Molchanov does see oil at $100 a barrel within six months.
That may end up being a headache for drivers, and for the Federal Reserve if it feeds through in a sustained way into increased prices of other goods and services. But for now, the threat of a further price spike from the Mideast conflict doesn’t seem imminent.
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