DATA & FIGURES
Oil prices have fallen, with Brent crude futures down 1.3% to $76.98 per barrel and West Texas Intermediate futures down 1.6% to $72.38. WTI advanced 4.4% on Wednesday, registering its biggest daily gain since June 1, while Brent settled up 5.4% in the prior session, notching its biggest daily gain since May 4.
THE SCENARIO
The US-Iran conflict has the potential to disrupt global oil supplies, particularly if the Strait of Hormuz is closed. However, the market is not pricing in a full closure of the strait, with Andy Lipow, president of Lipow Oil Associates, stating that the market is pricing in a new normal where periods of conflict occur between periods of relative calm that permit the transit of tankers.
DIRECT QUOTE
"It appears to be pricing in a new normal where periods of conflict (perhaps we might call them missile skirmishes) occur between periods of relative calm (or unease) that permit the transit of tankers" — Andy Lipow, President, Lipow Oil Associates
BBN INSIGHT
The Positive Side: The decrease in oil prices brings relief to consumers and investors, who were concerned about the potential disruption to global oil supplies. The Negative Side: The conflict has the potential to escalate, leading to a full-scale war that could disrupt global oil supplies and have a significant impact on the global economy. Citibank analysts believe that the US and Iran will return to negotiations in the next couple of weeks, as both sides have too much to lose from a spiral of escalation that leads to the destruction of energy infrastructure in the region.
MARKET REACTION
The price of oil has fallen, with Brent crude futures down 1.3% to $76.98 per barrel and West Texas Intermediate futures down 1.6% to $72.38. The market is betting that the conflict will not escalate into a full-scale war, but the situation remains volatile and subject to change.