Oil falls as Middle East tensions escalate

A drone strike that killed three US soldiers in the Middle East has escalated regional conflicts and irritated oil markets (CL=F, BZ=F). Prosper Trading Academy CEO Scott Bauer and Eurasia Group Middle East Practice Head Ayham Kamel analyze the potential fallout on Yahoo Finance Live. Kamel warns, “This is not going to be a comfortable few weeks at all.”
Kamel believes the attack’s near-term impact on oil supply will be limited, saying it’s “contained”. However, he expects the Biden administration will likely undertake some military response targeting militias in Iraq and Syria. Broader action on Iran seems unlikely, with Kamel citing “reluctance” to stoke inflation and considerations around “Biden’s own position domestically.” He believes Biden will aim to “be careful” and restrict long-term escalation.
Meanwhile, Bauer asserts “the bottom line is oil prices are on their heels right now” amid weak demand. Though geopolitical tensions could move prices, the impact appears muted as risks are already priced in. Bauer sees crude oil in a “bearish” macro position and is enthusiastic about the current volatility for traders, suggesting investors look to sell.
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And also tracking oil prices today they’re lower as the conflict in the Middle East escalates three US soldiers were killed and dozens wounded by a drone strike from from by Iran backed militants on Sunday Iran denying that though but President Biden vows to retaliate saying in a statement that

Those responsible will be held to account as for Iran the nation’s foreign minister is distancing himself from the attacks saying that accusations of Iranian involvement are quote baseless tensions flaring what can we expect the Fallout to be for the oil Market joining us now we have scottt bow Prosper

Trading Academy CEO and aham Cel Eurasia group Middle East practice head so am am I want to have you first set the scene here in terms of what this means in terms of oil supply and demand now that we see that this is escalating I think in the in the first

Instance there’ll be no impact direct impact on on oil supply in the in the region I think more likely than not the Biden Administration is creating a calibrated military response that appears very loud in terms of targeting militias in Iraq and Syria to rebuild that L us deterrence on Military

Front but I think the appetite to move into something direct that hits Iran or hits Iranian export it’s still low for now so I think there’s reluctance to do something in terms of tinkering with oil supplies that might impact in inflation expectations and over the long term even Biden’s own position domestically so

More likely than not we’re looking at a a contained sort of conflict with a higher risk that it expands for now the Biden Administration is probably going to be careful Scott let me get your reaction to What aham said I mean do you agree that potential disruption to oil markets

Pretty much contained there and that the broader concern as it relates to the energy space really is about the demand picture largely coming out of China CH too no doubt about it and I I wholeheartedly agree I do think even now with oil prices down today there’s

Probably about three to four dollars of risk premium already built in because of tensions in the Middle East uh especially with what happened over the weekend but you can see the reaction today uh it really goes to what you guys were just talking about that the response is probably going to be very

Tempered and the bottom line is oil prices are on their heels right now and it and it it is all because of demand or lack of it should we say we do have OPEC coming out next week which you know given everything that’s going on given the tensions in the Middle East that

Could disrupt the marketplace but I I really don’t think so so to me as a Trader I actually love this extra volatility and though much of the marketplace is looking at this as a buy the dip because of the escalated tensions out there I actually look at

This as selling what we call selling the rip or selling a move higher because the the overall macro picture of crude is absolutely on the bearest side obviously things can can escalate very quickly you can always have a big pop if God forbid something you know really tragic happens

Here so if you’re trading if you’re trading it with options or just with with Futures you always need to use a stop but I would look to sell any pop that we get in the near term so in terms of the response that we tend to see from OPEC as we saw with

With the Russia Ukraine crisis in the middle here what sort of response are you expecting from OPEC at the upcoming meeting well I think Saudi Arabia who really exactly is the engine of opic plus will be looking at a very comfortable price range I think for the

Saudi opic Plus in general uh any range of oil prices in sort of the 80s is complet really acceptable there’s not likely to be a big reaction to put additional barrels on the market in the current environment one exception to that would be if we saw an escalation of

The regional conflict and it begins to impact supplies then the Saudis would consider to work more actively with opic plus to try to create some form of relief over there but currently given just the the demand picture that we’ve discussed on the show and sort of the

Supply RIS risks as they are the Saudis will be cautious in terms of putting additional uh or taking taking barrels or putting additional barrels on the market St stable status quo works for now particularly giving the spending commitments on Vision 2030 and I think that the Saudis can deliver on that one

Key point I would just add that things yes there is sort of an intention by the Biden Administration to calibrate its response but military conflicts and Regional Crisis have the tendency to create their own Dynamics where we are today is not a very comfortable place in

Term of in terms of risks in general I do expect additional tit fortat uh sort of military strikes and confrontation between the US and the militias in Iraq and Syria this is not going to be a comfortable couple of weeks at all Scott let’s pick up on that point

Because since October 7th when this conflict began between Israel and Hamas so much of that risk concern in the Middle East has been about a direct conflict between the US and Iran it it feels like with every strike you’re getting closer to that now you’ve got three Americans that have been killed as

A result within the context of the energy markets what would be that trigger you think that would really lead you to be concerned about disruption in Supply when we’re talking about sort of looking at the conflict that’s playing out in the context of oil sure and any

Further escalation of what we saw over the weekend so so direct hits direct strikes on American interests on American soldiers uh that is what would where the escalation would be and you know this this weekend the tragic events that happen that certainly is one of those scenarios as you guys just

Discussed I would expect I agree some tit forat until that really escalated though I don’t think it’s going to affect the crude the oil markets but that’s always a possibility that’s always something that’s out there and that’s why I said earlier I really believe there’s $3 to four dollars of

Extra premium built into the price of crude right now we all hope it doesn’t happen right we all hope that the supply doesn’t get affected because of an escalation it certainly is a possibility it is not a probability it is a possibility it as you just said it’s

Going to be a volatile next couple of weeks here here I would not expect Saudi to do anything at the OPEC meeting I think the market is already pricing in that they’re not going to change their stance whether it’s more Supply or even pulling more off of the marketplace so I

Think it’s still you know fairly status quo and given any big heightened escalation I I I think you really have to look for crude to move lower I I it’s just that it’s it’s all about the Demand right now unless there’s a big escalation so Scott a three to four risk

Premium already baked into oil prices in the meantime though if you’re looking medium term what are we talking about mid 70s low 70s yeah I I think we we could hit 70 to 72 area if the conflict remains where it’s at right now within the next couple

Weeks I would not be surprised to see that 7072 if there’s a breakout on the upside above the 81 area that’s where you could see short covering coming in and you could see a big precipitous pop but I think that 7072 area if the escalation does not happen that’s where we’re

Going well I appreciate both of you for joining us with your insights and this important context as well Scott Bower and aham camell thank you so much