Energy & precious metals - weekly review and outlook
Investing.com — If Friday’s market was any indication, oil gains could be reversed almost as quickly as they are made on news of any thawing of the crisis in the Middle East. The question though is how many hours of relative calm could there be in this conflict before the next headline of an escalation sends traders over the edge again?
More importantly, how long would it take for the oil trade to realize that practically not a single barrel has been lost to the two-week-long Israel-Hamas war to justify a higher and higher war risk premium for crude prices?
This is oil — a commodity that attains its value from demand-related consumption. Unlike gold or the dollar, it’s not a haven to keep benefiting from a mere figment of imagination that supplies are at risk and, therefore, prices have to keep rising — when the reverse is the case.
Many on Wall Street seem to think crude prices should be higher anyway due to the relative proximity of the showdown in Gaza to some of the biggest oil producers, such as Saudi Arabia, the United Arab Emirates, Iraq and Kuwait.
While Israel and Gaza themselves barely register in the global oil trade, the Strait of Hormuz straddling them is a key chokepoint for the movement of crude, where a fifth of all oil passes through its waters, seems to be their logic.
Also, the almost daily saber-rattling against Israel by the world's fifth largest oil producer Iran — and concerns of reprisals against Tehran by the Israelis and their main ally, the United States — has added to concerns that something untoward might happen soon.
Yet, some oil traders see the conflict for what it is — a major political event without doubt, but not one that has shown any demonstrable risk so far to the crude trade.
That
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