Oil could have another run as liquid gold.
Crude oil futures (CL=F) rose 9% last week – the biggest weekly gain since March 2023 – on escalating tensions in the Middle East.
Israel’s pledge to retaliate for Iran’s missile attack has prompted more traders to bet on $100 oil, pushing bullish bets on Brent crude to a five-week high.
I had the opportunity to speak with Rystad Energy’s Claudio Galimberti, who told me that traders are “clearly considering the risk of a major supply disruption” as tensions in the Middle East rise to “one of the highest levels in four decades.”
Iran is a major player in the global oil market, producing more than three million barrels of oil per day, so the growing risk of supply disruption could be a “major tailwind for prices” in the short term, Blue said Line Futures’ Bill Baruch.
“That will push crude oil prices up significantly. That is a game changer,” Baruch warned.
If you’re looking for ways to hedge against the risk of supply disruption, Galimberti sees Exxon Mobil (XOM), Chevron (CVX) and Shell (SHEL) as “clear beneficiaries” due to limited exposure to the Middle East -East.
Based on stock prices over the past week, it appears Wall Street agrees. Exxon shares rose 7.8% to a record high, while Chevron rose 3.6%.
Wall Street has been trying to assess the risk of a possible broader conflict. One scenario being discussed is the possible blockage of the Strait of Hormuz, a crucial passage and hub for the global oil market, which accounts for almost 30% of world oil trade.
It’s a potential threat that Wall Street professionals will be watching closely in the coming days.
Goldman Sachs’ Jenny Grimberg reiterated the increasing risk of significant disruptions, writing in a note last week that the “major impact of the conflict is likely to come from a disruption of energy supplies, with a possible closure of the Strait of Hormuz likely to a significant further increase in oil prices, which could in turn put renewed upward pressure on inflation and weigh on growth.”
Goldman estimates that Brent prices could peak around $90 a barrel if OPEC quickly offsets a disruption of 2 million barrels per day for six months. However, if OPEC doesn’t take action to address a shortage, the team sees prices peaking in the mid-90s.
And experts warn that the consequences of further escalation in the Middle East could spread far beyond the energy market. Paul Christopher of the Wells Fargo Investment Institute says broader conflict will prompt investors to reposition themselves in “perceived havens.”
“It will likely lead to an appreciation of the US dollar, the Japanese yen and the Swiss franc; higher prices for commodities and 10-year U.S. Treasury bonds; and lower stock markets,” Christopher wrote in a client note last week.
Seana Smith is an anchor at Yahoo Finance. Follow Smit on Twitter @SeanaNSsmith. Tips about deals, mergers, activist situations or something else? Email seanasmith@yahooinc.com.
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