Growing Worries on Iran Tensions Pushed Oil Futures Prices Higher

U.S. oil futures prices have sharply increased by 18% over the last three weeks due to growing concerns regarding Iran.

The sharp rise has exceeded increases for majority of other assets. Copper and stocks, which are also strongly tied to expectations on economic growth just like oil, have seen much smaller increases. The Standard & Poor’s-500 Index has gained by 2.5% over that period, while futures of Comex copper have increased by 3%.

However, neither copper nor stocks are as dependent as oil on the Strait of Hormuz that Tehran has threatened to shut down. A series of recent incidents have brought Iran back into the focus of the market.

According to traders and analysts, the crude price per barrel had been bid higher to account for the risk that Iran may attempt to restrict the flow of crude. Moreover, over the past several weeks, that risk had masked more traditional fundamentals, such as expected global growth or the quantity of crude oil barrels available in the market.

In the month of July, oil prices gained by almost 5% after reports of military tests in Iran and a buildup of U.S. military presence in the Gulf of Persia. The most recent increase in oil prices was a 3.1% gain after Israel blamed Iran for a suicide bomb attack in Bulgaria that killed six Israeli visitors.

Over the last three weeks, minimal increases in the per barrel crude price were seen after additional warships were sent by the U.S. to the Gulf.

According to Price Futures Group’s senior market analyst Mr. Phil Flynn, the dominant concern in the market is that a war in Iran will occur that will lead to a disruption in the Hormuz Strait.

The new conflict renewed a risk premium on Iran which had previously eased in the spring due to optimism that talks with Iran may resolve the situation.

Moreover, concerns regarding Iran were trumped by worries that the debt of Greece and the potential collapse of the eurozone would lead to economic instability and demand reduction.

Oil futures prices declined by 29% this year from its highest rate posted on February 24 to its lowest of $77.69 per barrel posted on June 28.

The recent crude price per barrel broke a series of gains for seven straight sessions by ending the latest session lower by 1.32% to $91.44.

By: Chris Termeer