Oil Prices Spike On Rising Gulf Tensions: Here's How To Profit
Zacks Investment Research | Jul 21, 2019 09:06PM ET
Iran’s latest move to seize one U.K.-flagged and another Liberian-flagged tanker last week in the Strait of Hormuz pushed oil prices northward and stoked fears of rising tensions in the Middle East. After all, almost 22.5 million barrels of oil pass through the Strait of Hormuz each day since the beginning of 2018, which is roughly 24% of the world’s daily oil production. So, any disruption can lead to supply-demand disparity, eventually leading to elevated oil prices. The West Texas Intermediate (WTI) crude went up 1.5% to $56.15 a barrel on Jul 19. And when it comes to Brent crude, the global oil benchmark rose 2.1% to settle at $63.23 a barrel.
Iran, initially, said that it captured the British-flagged vessel after it collided with a fishing boat. However, it is widely anticipated that such a move follows the British forces’ capture of an Iranian tanker off the coast of Gibraltar, alleged to have been transporting oil to Syria.
Meanwhile, Jeremy Hunt, British foreign secretary, has confirmed that the U.K. government is looking to release the vessels. Iranian news agencies, however, confirmed that the Liberian-flagged tanker was later released.
Such seizures add to tensions between Iran and the West, especially after the U.S. Navy brought down an Iranian drone that had come close to one of its ships. Trump’s national security adviser, John Bolton had said that the Iranian drone was shot down as it “posed a threat to the ship and its crew. It’s entirely the right thing to do.”
The United States has accused Iran of attacking tankers in the Gulf of Oman. Two tankers from Saudi Arabia, one vessel from Norway, and one from United Arab Emirates were damaged by sabotage attacks between the Persian Gulf and Gulf of Oman.
How to Play the Oil Rally?
From big oil producers, rig operators, pipeline owners to refiners, all witnessed a rally in shares, which resulted in a record high for the broader S&P 500. Energy shares in the S&P 500 index were collectively up 0.5%. Lest we forget, energy shares have been one of the weakest performers so far this year, but this growing turmoil in Middle East will surely lure investors back to energy players.
(Performance as on Jul 19, 2019 - Zacks Investment Research
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