You might think that oil will now reach $100 a barrel, but that’s not the case.
Donald Trump threatens “regime change” in Iran early this morning and violates oil prices reject Before the U.S. exploded Iran’s nuclear facility, return to roughly ($76 per barrel) position. Of course, the price briefly increased to $79. But this decline has dropped despite Iran’s threat to close the Strait of Hormuz, a transportation bottleneck in the Persian Gulf.
The VIX volatility index (the so-called “fear index”) fell 6% this morning, while the S&P 500 rose 0.22%.
Why are investors so calm in a world full of war and chaos?
Because Iran’s choices in screwing up the oil market are actually very limited.
First, if Iran closes the strait, the country itself will be the largest. Iran needs oil revenues, just as the rest of the world needs Iranian oil. The United States hardly feels the closure of the Strait Buy very little oil from the Bay Area. The main buyer of Iranian oil is China, which is an ally of Tehran…so you can understand why investors think Iran wouldn’t shoot with that particular foot and why Iran hasn’t really closed the straits yet.
Historically, Iran cannot actually block transportation routes. According to Torah’s George Ship, the Iranian regime never did this in its five-year existence. If this is done, it will strengthen the dollar – recently experienced a weak spot. (The oil contract is settled in US dollars, so if the price rises, demand for the US dollar will increase.)
“In the strike’s lead, the market price on diplomatic progress: the euro strengthens, weakens, safe havens are stationary, and oil fell nearly 3% on Friday, indicating a part of the recovery of the pre-conflict script. Commodity channels… So even the threat is enough to keep the dollar bid, and positioning will adjust as investors start to relax their bets on their bearish dollar.”
Elsewhere, investors began to suspect that Saturday’s bombing looked more like a period of closing uncertainty than a start. The current situation is that Iran’s air capabilities have disappeared, its nuclear weapons program has been severely damaged at least, it has a limited ability to punish the world with higher oil prices, and its military’s initial retaliation against Israel’s further bombing overnight consists of only one person, one of which is!
“The weak Iran without nuclear capabilities eliminates the biggest threat to the Middle East and Israel, which will be seen as a positive for market and technology stocks, especially as investors digesting the news,” Wedbush’s Daniel Ives and the team told clients this morning. “The market will see this Iranian threat as being gone, which is positive for growth in the wider Middle East and technology sectors. It will take some time to resolve the conflict, but the market will see the worst in the mirror behind, and investors can expect.”
Still, what would it look like if Iran curbed the oil market?
According to Goldman Sachs, there may be “an estimated geopolitical risk premium of $12” per barrel. “We believe that there are (possibly) two types of oil destruction, not in our basic case: 1) reduce only Iran’s supply ($80 Brent), 2) wider regional oil production or transportation ($110 Brent),” analysts Sahar Islam and Ayushi Mishra wrote in Fortune’s notes.
Here is a snapshot of the action before the opening bell of New York:
- S&P 500 Index YTD rose 1.47% on Friday, closing at 5,967.84.
- this morning, Standard & Poor’s Futures In a brief surge of more than $79 a barrel, then fell above $76, up 0.22%.
- this vix The volatility index fell 6% this morning.
- this Stoxx Europe 600 and FTSE 100 in the UK All are flat in early trading.
- Bitcoin After falling to a low price of around $98,000, it returned to $101k.
- China and Hongkong Extensive this morning.
- Japan, South Korea, and India Everyone saw the decline.
