Oil Prices Refuse to Settle as War Drags On
Oil is trading around $100 to $101 a barrel right now. That might not sound like a crisis compared to the $111 spike we saw last week, but here's the thing. Before this war started, oil was at $78. We're still up 40% in less than three weeks, and nobody thinks it's coming back down anytime soon.
Every day brings new uncertainty. The US launches strikes on Iranian oil infrastructure. Iran threatens to close the Strait of Hormuz permanently. Saudi Arabia's Ras Tanura refinery sits offline at 550,000 barrels per day lost capacity. Qatar declared force majeure on LNG exports worth $15 billion monthly.
Traders are trying to price in how long this lasts. If the war ends tomorrow, oil would probably crash back to $80 or lower. If it drags on for months, analysts at Goldman Sachs predict $120. Citigroup sees potential for $150 if Iran fully closes the Strait.
JPMorgan warned clients of $200 oil in a worst case scenario. The G7 countries already released 400 million barrels from their emergency reserves to try to calm the market. The US contributed 180 million barrels, Germany 30 million, Japan 42 million, and the UK 20 million. It worked for a few days, dropping oil from $111 to $94. But then Iran attacked more ships, and the price bounced right back.
What makes this different from past oil shocks is the combination of supply disruption and geopolitical uncertainty. In 2020, oil crashed because nobody was driving during COVID lockdowns. In 2008, it spiked because of speculation and demand from China. But now we have actual supply being cut off, insurance companies refusing to cover tankers, and a war with no clear end date.
The International Energy Agency just slashed their global demand forecast by 210,000 barrels per day. That sounds like good news, right? Less demand should mean lower prices. But it's actually bad news because it means they think the economy is slowing down from high energy costs. India cut its growth forecast from 6.5% to 6%. Germany expects recession. France revised GDP down to 0.9%. ExxonMobil, Chevron, and ConocoPhillips are all reporting record profits from the price spike. But airlines like Delta, United, and Lufthansa are hemorrhaging money as jet fuel costs soar.
