Tensions with Iran unlikely to boost oil

The Oil price received a boost yesterday after the head of U.S. Central Command said the United States Navy shot down a second drone over the Strait of Hormuz last week which inches the US and Iran closer to a military conflict

This follows news that Iran had seized a British oil tanker which greatly ratchets up tensions and threatens to disrupt the supply of oil

“We are confident we brought down one drone, we may have brought down a second,” General Kenneth McKenzie told CBS News in an interview.

All these rumours of a possible military conflict is keeping a floor under the oil price at the moment according to one analyst and if the risk suddenly subsides we may see the price plummet.

“I think the reason oil prices are trading above $50 a barrel is purely because of the geopolitical risk bid,” said Paul Gambles, co-founder of the MBMG Group.

“I think if you take that away then oil would be a lot, lot cheaper than it is so then the question becomes: how much more geopolitical bid can it get?” he added.

The amount of Non Opec oil now hitting the market is growing by the day and this is likely to keep a lid on oil prices in the foreseeable future.

Even production cuts from Opec are not expected to offset the increased amount of oil.

“OPEC has already given up about 5 percentage points of market share (since it started cutting production) — that is quite significant,” said Morgan Stanley’s global oil strategist Martijn Rats

“The history of fear around the Strait of Hormuz suggests that from time to time, this concern can flare up and we can have some disruptions but they rarely last for very long. There is a difference in the oil market this time around because non-OPEC is simply growing so fast. That is the real game changer and that’s why the price action is relatively benign” he added.

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