Oil prices have surged sharply due to the conflict in Iran, but have also swung wildly over the past week.
Here are some key factors to consider:
- Brent crude prices are currently hovering around $100 per barrel and WTI in the $90 range. Both oil benchmarks have jumped from around $70 per barrel in just a matter of days following the escalating conflict in the Middle East. However, oil prices were as high as nearly $120 and almost as low as $80 per barrel over this period as well.
- The key consideration is the Strait of Hormuz, a waterway through which roughly 20% of global oil shipments pass. Its closure means that oil can’t be shipped out of the Persian Gulf, causing many oil-producing nations to begin running out of storage capacity. This has led to production cuts, reducing overall supply.
- Oil prices first fell when the U.S. declared that it would help provide insurance to tankers and escort them through the strait. The International Energy Agency also declared that 400 million barrels could be released from strategic reserves to help smooth these supply issues.
- However, news that Iran continues to block the Strait of Hormuz has resulted in oil prices bouncing back toward $100. Most recently, the U.S. has eased sanctions on the purchase of Russian oil to try to support supply.
- While oil price volatility has affected the stock market, not all areas are impacted equally. For example, energy stocks have gained about 25% year-to-date. Since the price shock is due to near-term supply issues resulting from the conflict, economists often view these as “transitory,” meaning it will eventually be resolved.
The included chart shows how oil prices and the stock market have historically interacted, providing helpful perspective on how energy price spikes affect broader markets.
While short-term events like this can be unsettling, history shows that disciplined, long-term investors who stay focused on their financial goals tend to navigate these periods most successfully.
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