U.S. Crude Hits Highest Weekly Gain In 30 Months: 5 Picks
Zacks Investment Research | Jun 23, 2019 09:07PM ET
After fears of global economic slowdown and higher supply -- especially from the United States -- subdued crude oil prices for a month and a half, a turnaround showed up last week on heightened geopolitical conflict with Iran.
Disturbances in Iran intensified on Jun 13, when two oil tankers were set on fire in the Strait of Hormuz, for which the United States blamed Tehran. On Jun 20, Iran’s Revolutionary Guard claimed that it recently shot down a U.S. drone near the Strait of Hormuz. Iran alleged that the drone had entered its sky, which the U.S. military claimed as international airspace.
On Jun 21, President Donald Trump tweeted “Iran made a very big mistake!” although the United States refrained from conducting military strike on Iran, Trump said that the United States would impose “major additional sanctions” against Iran on Jun 24. Notably, Iran is already facing U.S. sanctions regarding crude oil exports after the Trump administration withdrew from Iran Nuclear Agreement of 2015.
Crude Oil Prices Jump
On Jun 21, the U.S. benchmark West Texas Intermediate (WTI) crude gained 0.6% to settle at $57.43 a barrel. Global benchmark Brent Crude was up 1.1% to settle at $65.14 a barrel. The WTI crude jumped more than 9% in the past week, marking its largest weekly gain since December 2016. The Brent recorded the first weekly gain after five weeks.
Iran Conflict Likely to Escalate Further
The intensifying friction between the two countries could disrupt the shipment of crude through the Strait of Hormuz, responsible for the passage of 20% of total crude oil being consumed globally, per media reports. Through the strait, the majority of the crude volumes of countries like Kuwait, UAE, Iraq and Saudi Arabia are exported.
It goes without saying that while the Saudis and the United States are on one side, the Houthi Yemenis and Iran make the other. Iran has reportedly warned that if its economy is hit due to America’s sanction on its crude export, it will then attempt to disrupt the passage of oil tankers through the strait. This could further constrain global oil supply. The news in fact has already bumped up oil prices. (Read More: Zacks Investment Research
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