When Will There be an Oil Spike?
Oil is one of the most popular financial spreads and “Turmoil in the Middle East!” has long been the favourite rallying cry of oil traders.
In March, crude oil jumped upon news that Iranian production would fall sharply. Reuters reported that it would fall by 300,000 barrels a day, and the price of oil jumped by around three percent.
It is popularly believed that whenever something is blown up in the Middle East, oil prices spike. In July, a bomb blast killed three top advisors to Syrian President, Bashar al-Assad, and another bomb blew up a bus carrying Israeli tourists, for which Israel accused Iran. Neither country does much in the way of oil, but they are close enough to oil fields for supply disruption to ensue, and of course, oil price to spike.
Three tweets caused an oil spike in August. An account falsely set up in the name of Russian interior minister, Vladimir Kolokoltsev, tweeted at 9:59am in New York that President Assad had been injured or killed. Two further tweets confirmed the death. Syria produces scant oil, but Iran is a major supporter and it is feared it would react. The rumour circulated by email and instant messages. From 10:15 to 10:45, light, sweet crude futures ascended from $90.82 to $91.99 a barrel. Phil Flynn, an analyst for Price Futures Group, said, “A well-placed story can move the market, and that looks like what happened.” The Russian Interior Ministry later said it was not connected to the account. The spike later reversed, although not completely.
An Israeli attack on Iran could cause oil to spike. Robert McNally, formerly the senior international energy advisor to the US National Security Council of George W. Bush, said that the experiences of the Gulf and Iraq Wars had led oil traders to believe the US military would rapidly restore transport of oil through the Strait of Hormuz if Iran acted to interrupt the channel. 35 percent of oil conveyed by sea passes through the Strait.
War games by US planners, however, have shown that it could take as much as a month to reopen the Strait. Saudi Arabia has traditionally been viewed as the solution to a shortage of oil, but electricity consumption in the country has been rising by 10 percent a year and the Kingdom increasingly needs its oil for itself. Another cushion is the US strategic petroleum reserve, which the US government claims could yield 4.4 million barrels of oil a day, but produced less than 500,000 barrels a day when it was tested last summer because logistics had changed.
The implications for spread betting go even further: imminent US military action customarily results in a bump to support of between five and seven percent for the sitting president, which could swing the election.
Last month, oil spiked when Israeli Prime Minister, Benjamin Netanyahu made a speech to the United Nation calling for a definite red line on Iran’s development of nuclear weapons. The price of crude oil leapt 2.1 percent to $91.85 a barrel, the largest jump for eight weeks.
As is evident, following the news could allow you to foresee a sudden rise in the price of oil, and profit accordingly.