Why Isn't Oil At $90? Markets Under-Pricing Hormuz Risk
Global oil markets are sending the wrong signal by treating the latest attacks on commercial shipping in the Strait of Hormuz as a contained geopolitical incident rather than a potentially significant threat to energy supplies, warns the CEO of financial advisory giant deVere Group.
Despite reports of Iranian missile strikes on commercial vessels in one of the world's most strategically important shipping lanes, Brent crude remains close to $73 a barrel.
Nigel Green comments:
Roughly one-fifth of global oil consumption moves through the Strait of Hormuz, making it a vital artery for international energy markets. Any sustained disruption to tanker traffic has immediate consequences for crude prices, inflation expectations, shipping costs and monetary policy around the world.
AdvertisementNigel Green believes investors are taking comfort from the fact that physical exports have not yet experienced a meaningful interruption.
He argues that investors are placing considerable faith in diplomacy eventually preventing a broader regional conflict, despite negotiations between Washington and Tehran continuing without a lasting breakthrough.
The deVere CEO says geopolitical shocks rarely unfold in a predictable way. Instead, they often remain largely ignored until a catalyst forces markets to reprice risk rapidly.
He says investors should spend less time reacting to political rhetoric and more time monitoring indicators that reveal whether energy supplies are beginning to tighten.
He also believes the current pricing leaves markets vulnerable because oil has recently been trading near multi-month lows following concerns over global demand.
While Nigel Green is not forecasting an immediate surge to $90 a barrel, he believes current market pricing does not adequately reflect the range of possible outcomes should security conditions deteriorate.
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