Will Oil Go Higher?
Oil has been much in the news in recent weeks. President Trump’s decision to pull out of the Iran nuclear deal sent prices soaring as fears emerged that the decision could further destabilise the entire Middle East.
This comes against a backdrop in which oil has been gradually climbing to levels not seen since the beginning of the decade. While oil is still some way from reaching the levels of $140 or more that it last hit shortly before the Global Financial Crisis, $80 or $100 oil could be a significant problem for a world that has become used to relatively cheap energy.
In this article, we’ll consider where the oil market is likely to head over the next few months and what the likely consequences would be for a number of major companies.
Future Of The Oil Price
If there is one thing President Trump is known for, it is unpredictability. While Iran has been his hobbyhorse topic of late, there’s no guarantee that he won’t move onto another issue in the next couple of days. Therefore, it’s possible that pressure on Iran could abate, leading to a fall in the oil price.
However, it’s equally possible that Trump could continue to increase pressure in the region, not just in the case of Iran but other Middle Eastern flashpoints, or even Russia.
Who Would Suffer?
The airline industry is generally an early casualty of any rise in oil prices. The sector has enjoyed unusually high levels of profitability in recent years and an oil price shock could put a significant dent in this progress.
An oil price rise could, however, be a major boon for renewable companies, many of whom have come under pressure since President Trump began to unwind many of the ‘green energy’ policies that had been pursued by the previous administration.
Put simply, the oil price rise could have a huge range of impacts on the markets. If it comes at the same time as a strengthening dollar, pressure on US exporters could begin to damage the economic recovery that the country has been experiencing in recent years.
Case For The Bears
What might drive Oil prices down? Much of the Trump rhetoric towards Iran could be seen as a cynical move to drive up prices and revive the US Shale market. Low oil prices closed many of the US operators, but $60+ prices make them viable again. Those pumps coming back online, and a patched up Iran deal via Europe and China, could lead to another glut of oil on the market and supply far outstripping demand.