The price of crude oil has spiked in response to the hostility brewing between Iran and the United States of America. Trouble started when US killed Iranian General Qassem Soleimani in an airstrike having been accused of terrorism. This created fear of possible oil short supply in the market and forced prices up the scale. WTI jumped to $63.27pb while Brent hit as high as $71.17pb. Bonny Light rose sharply from $67.42pb to $69.98pb.
The initial price response was seen easing slightly and a bit of settlement observed with Brent crude dropping to 68.81 dpb. While WTI now sell for 63.82dpb, Bonny Light which initially stood at 69.98 slightly dropped by 1.13% to currently sell for 69.19 dpb.
Arthur Berman writing for Oilprice.com described the price behavior as “fear premium” price discovery. This imply that oil marketers must take heed since the price hike is based on expectation of shortfall in supply.
However, the fear of hostility between Iran and US seems to gather momentum after Iran fired ballistic missile into US base in Iraq Tuesday. Though damage assessment declared no casualty for both US and Iraq, Donald Trump is expected to take a position on possible retaliation on Iran. Is this enough to sustain or push further prices in the world oil market?
In reality, Iran and US are major players in the global oil market and any sustained hostility should have major impact on the market since supply will be definitely affected. the question is will US retaliate?
In June 2019, the Iranian military shot down US drone aircraft with the reason that it trespassed the country’s airspace. Oil prices responded awaiting the response of the US President. The anticipated conflict did not ensue after pulling off of the all-set air attack on Iran and prices went down. Donald Trump had threatened in 2018 to block Iranian oil export which ended up in the granting of waivers while the resultant price rally eased out.
Donald Trump’s mood swing as described by Arthur Berman makes uncertain the US full conflict with Iran as been expected by oil marketers. It therefore mean oil prices should be better be controlled than simply celebrating erratic responses.