The days of oil prices spiking by $20 to $30 a barrel on geopolitical events are probably over
Thursday 25 Jul 2019 Author: Yoosof Farah

When a country threatens to block off access to a passage in the sea through which one fifth of the world’s oil passes that usually means oil prices skyrocketing.

But as tensions between Iran and the UK and US escalate, the commodity’s price – and that of shares in oil and gas firms such as Royal Dutch Shell (RDSB) and BP (BP.) – has seen only modest gains.

Even if Iran does block off international access to the Strait of Hormuz in any escalating tit-for-tat after it seized a UK-flagged oil tanker, production is growing so quick there could soon be more oil than the world needs.

According to OPEC, production of Brent crude, which stands at around $63 a barrel, should hit 2m barrels a day this year and 2.4m next year.

Given that number excludes OPEC countries, and global demand is forecast both this year and next at around 1.4m barrels a day, the world could soon be in for a very big oversupply.

While it is unlikely Iran would block access to the strait, it means even if it does the old days of oil prices spiking by $20 to $30 a barrel on such events – and shares in BP and Shell rising accordingly – are probably over.

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