Below the Recent Range and Mounting Tensions
Despite its recent increase, the price of oil is below the $50-$55 range within which it has traded for most of this year. Angry words and shows of force by the U.S. and the Islamic Republic could easily end up leading to some sort of armed conflict between the two countries. Such a conflict, of course, would send oil prices soaring, given Iran’s sizable oil exports and its close proximity to Saudi Arabia and other Gulf states.
Additionally, Iran is located near the the Strait of Hormuz through which a third of the world’s oil flows, and Tehran has previously threatened to close the strait to U.S. ships.
Additionally, last month President Donald Trump wrote that he would not be “kind” to Iran, and his administration placed new sanctions on Tehran, spurring Iran to conduct “extensive military exercises.” In early March, the U.S. navy accused an Iranian ship of “harassing” one of its vessels. Although conflict may not break out between the U.S. and Iran in the next few months, it’s certainly a real possibility.
The aforementioned catalysts, which will likely fuel a rally in oil prices over the next few months, makes oil and energy stocks quite attractive at current levels.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.