Oil News: $100 Crude Back in Focus as Strait Closure Risk Builds

U.S. and Israel Launch Strike on Iran as Oil Markets Brace for Impact

The bombs started falling on Iran on Saturday, February 28. The United States and Israel launched a coordinated strike targeting Iran’s leadership, opening a new chapter of conflict in the Middle East. President Trump justified the attack by suggesting the removal of senior officials would eliminate a security threat and give Iranians a chance to form a new government.

Iran responded to the attack by launching a counterattack against Israel and neighboring Arab countries. Iran’s counterattack caught a lot of people off guard and the whole region is now on edge.

I haven’t seen any reports of oil fields or facilities being targeted yet, but that could change fast. The big question remains, if and when will Iran threaten 20% of the world’s oil supply by shutting down the Strait of Hormuz?

Trump’s Deadline Ran Out, a Little Earlier Than Expected

President Trump warned on February 19 that Iran had a 10-to-15-day window to make a deal to end its nuclear program, but after three rounds of talks ended on Thursday, time was up, a little earlier than expected, so now, according to Trump, “it’s going to be unfortunate for them.”

Oil Is the Central Barometer of This Crisis

No one wants to downplay the loss of life or the destruction of another country’s infrastructure, but in my opinion, oil is the central barometer of the crisis. The facts are, Iran is a major oil producer, and the Strait of Hormuz, which lies off Iran’s coast, carries about a fifth of global oil supply.

If we try to forecast Iran’s next move, it’s likely to be more missile launches against neighboring Arab states, and if the new leadership believes its days are numbered, the shutting down of the Strait of Hormuz. In fact, the threat is so real that I’ve seen reports that several major oil companies and trading houses have already suspended crude oil and fuel shipments that use the Strait.

Brent at $80 If the Strait Closes, $100 If the Campaign Drags On

At this time, my work suggests the move to close the Strait is likely to put Brent at about $80 per barrel, close to what it reached during Iran’s 12-day war with the U.S. and Israel last June. Brent and WTI crude are already up considerably since December. On Friday, Brent jumped about 2.9% to close above $72.80, and WTI moved up 2.8% to trade above $67.00.

However, if there is no de-escalation of the conflict ahead of Monday’s opening, or if reports surface that suggest the entire campaign to perhaps erase Iran’s nuclear capabilities could take two weeks or more, prices could jump $10 to $20 per barrel. A move of this magnitude would put $100 per barrel on the radar.

Bottom Line: Oil Should Open $8 to $10 Higher on Monday

Bottom line, oil should open $8 to $10 higher on Monday. No de-escalation or a closed Strait of Hormuz pushes that to $10 to $20. If this conflict drags on for two weeks or more, $100 is on the table.

More Information in our Economic Calendar.