Oil prices rise for 5th straight session on Mideast tensions

Oil (CL=F, BZ=F) prices are rising for the fifth consecutive trading day on the fear that escalating conflict in the Middle East could impact oil supplies. Lipow Oil Associates President Andy Lipow joins Catalysts to discuss the movement and the commodity's outlook as tensions rise in the Middle East.

"The market is certainly concerned about this escalating tension between Israel and Hezbollah across the Israel-Lebanon border, and whether that could ultimately result in Israel striking its facilities in Iran. But I don't think that we're going to see a Strait of Hormuz being shut down or things like that. But the market is pricing in additional geopolitical risk that such an event could occur," Lipow explains.

He notes that the Strait of Hormuz is particularly important as it is where 20% of the world's oil supply transits. If it were to be shut down, oil prices could rise by $30 to $40 per barrel.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video Transcript

Oil prices rising for the fifth trading day in a row on fear that escalating conflict in the Middle East could impact oil supplies here with more.

And we want to bring in Andy Lipow.

He is Lavalla Oil Associates, President Andy, it's great to talk to you.

So when you take a look at the conflict that has played out in the Middle East since last October, we haven't yet seen any disruption to supplies.

Is that at risk of changing?

Well, I think it is at risk of changing, although the probability of it happening is probably still pretty small.

The market is certainly concerned about this escalating tension between Israel and Hezbollah across the Israel Lebanon border and whether that could ultimately result in Israel striking at facilities in Iran.

But I don't think that we're going to see a strait of Hormuz being shut down or things like that, but the market is pricing in additional geopolitical risk that such an event could occur.

And what does that look like for you?

Long term?

You know, I if that event were to occur, do you anticipate where do you anticipate the price of oil going as we head into the end of this year.

Well, if we were to see the strait of Hormuz shut where about 20% of the world's oil supply transits, you certainly could see oil prices rise 30 or $40 per barrel.

But I'm certainly not anticipating that.

I think that Brent prices which are currently $80 a barrel will drift on up to 85 to $90 a barrel as these lower prices are really going to force OPEC plus hand to delay the restoration of their production cuts, which they had announced earlier this year.

So any, I guess a as the market stands right now, given the supply picture that we do have given the output that we're getting here from North America.

I it sounds like the oil market, at least here in the short term, you think could potentially offset or be able to discount any sort of supply disruption that we could see.

Is that right?

Well, I certainly think that is the case, especially with the EI a reporting last week that the United States produced a record 13.4 million barrels a day of oil.

And you combine that with additional supplies out of Canada, Brazil and Guyana.

And you marry that against faltering demand if you will or demand, that's not growing as fast as the market would like out of China, creating, you know, a more or less supply demand balance, which is really weighing a little bit more on the supply side.

Well, it's interesting and the, the other thing that comes to mind when I look at oil from a geopolitical perspective, it's not just, you know, geopolitical tensions and, and uh foreign policy issues, it's also currency volatility which certainly drove a lot of the market movements over the past couple of weeks here.

How much could a continuation of that currency volatility start to impact the price of oil?

Well, we certainly see that as the US dollar strengthen, that tends to put pressure on oil prices.

But when geopolitical tensions are considered and oil prices rise with a stronger dollar, this really puts stresses on countries and economies around the world.

From Latin America to Southeast Asia to elsewhere who have to pay for their oil in dollars while their currencies weaken relative to the dollar.

All right, Andy, thank you so much for joining us.

We really appreciate it and uh thanks for bringing us your insights.