What will happen to oil if the Iran situation escalates
Despite a rise in oil production in mid-June
from Saudi Arabia and Russia, Crude oil exports are expected to dip by 100,000
barrels per day next month according to some reports. These statements came
from the Saudi side after last week's report that OPEC had increased production
to monitor the production cut levels agreed in 2016.
In our daily
research notes, we have highlighted
that just weeks ago, President Trump asked Saudi Arabia to increase its
oil production to compensate the shortfalls in Venezuela as well as
future shortage from the Iranian side as effects from the US sanctions are
ready to take place in November.
However, Saudi Arabia looked to increase its
production in July to 10.8 million barrels per day (its highest level) to
attempt to cover the fear in the market as it tightens.
Coming back to the risk of oil supply and specifically to the US sanctions on
Iran, a "war of words" emerged during the past weekend after the Iranian
President Rouhani threatened to shut down the busiest seaway for oil exports,
the Strait of Hormuz even by military action.
Trump has responded to Rouhani by tweeting "that Iran will suffer from consequences of which few have suffered before". After this event, oil prices jumped 1$ but did not hold up. The two nations are trying to avoid a war between them but odds for a military incident in the Persian Gulf have increased.
Now if we want to put in a numbers' perspective
the outcome of such an event - should Iran try to disrupt the Strait of Hormuz
- 19 million barrels a day will be at risk compared to 2.5 million barrels per
day in export from the Iranian side, which is the 5th largest oil exporter.
Long story short, a wave of tensions is coming up in the next couple of months
but it should also make things more clear. However, we believe that oil prices
are biased to surge more in the near future due to all the tensions and
expectations discussed above.
Some analysts say that if Iran will shut down the Strait of Hormuz and other Straits, we can witness Crude prices above 100$ per barrel. From a technical point of view, Crude oil prices are very well supported by multiple support levels and trend lines (Daily Chart), and we expect a trend continuation for the next months as we eye to reach the $78 level.
This article was written by the ADSS Research team - for daily technical analysis on a section of instrument you can visit our Research pages.
