Oil prices

Why oil prices are rising so tepidly after weekend of conflict

By David Goldman

Oil prices are rising after a weekend of back-and-forth strikes near the Strait of Hormuz. But not by as much as you’d think.

Brent crude was up just 0.6%. US oil prices are up only around 0.8%. And oil remains below where it had traded before the war started.

What’s going on here? Sure, the US and Iran agreed to end hostilities in the strait. But there are 3 reasons why oil has tumbled so low and is staying there.

Supply: The cushion of record oil supply before the war has kept a cap on prices throughout the conflict. They never approached record highs despite the strait’s closure creating the largest oil supply shock in world history. And oil analysts expect OPEC to start producing rapidly again soon, potentially creating another massive supply glut.

Demand: As prices rose and oil became scarce in some parts of the world – particularly Asia, demand fell much more sharply than expected. That was particularly true in China, which rapidly switched to alternate fuels during the war – and the industry expects demand may never fully return.

Trump: Inventories in the US are at critical levels. President Donald Trump recognizes that: He said as much two weeks ago. The market believes he is hugely incentivized to keep the strait open. And, like clockwork, the president announced in a social media post Monday that US and Iranian negotiators will meet tomorrow.