Glacier FarmMedia — Any chance of crude oil prices skyrocketing higher became less likely on March 9, said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. Flynn based that on the assumption that Iran’s military capabilities are declining quickly.
During the latter part of the weekend of March 7 to 8, crude oil futures vaulted to nearly US$120 per barrel. Flynn said the threat of closing the Strait of Hormuz and Gulf state countries shutting down their production drove up prices.
However, by the mid-afternoon of March 9, those sharp increases moderated somewhat, with the nearby contracts for West Texas Intermediate and Brent crude oil trading at about US$90 to US$95/barrel.
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“It shows you how the market is running on fear as well as reality,” Flynn said. “The markets are coming back down on the fact that the military (successes) the U.S. and Israel are having right now.”
Playing into the softening of crude oil’s gains was talk of releasing 300 million to 400 million barrels from the global strategic reserves.
“By talking about it, is easing concerns,” Flynn said.
Two schools of thought
He pointed to two schools of thought regarding current crude oil prices. “You got some people who believe Iran can keep the havoc for week or months. Other people think (Iran) is on its last leg.”
Flynn acknowledged that the Middle East war is not yet over, that it’s still generating good amounts of uncertainty and volatility in the markets.
“But the flip side of it, is it reasonable to believe the whole world is just going to stand by and let Iran shut down that strait for an extended period of time? I don’t think so,” he stated.
The analyst also pointed out that China is very dependent on Middle East oil coming through the Strait of Hormuz. He suggested there could be pressure on Iran to allow tankers heading to China to pass through.
With all that, Flynn expressed a note of caution. “We can’t underestimate Iran’s ability to keep up havoc for a week or two.”
And he noted there isn’t a global shortage of crude oil just yet, rather there are issues in transporting it out of the Persian Gulf.
As for United States demand for crude, Flynn said domestic producers can ramp up their production efforts.
“A lot of them have been cutting back because prices have been low. This might be a catalyst for them to bring out more oil,” he said.
