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Today has been a rollercoaster for oil prices. In fact, oil prices spiked 2.6% earlier this morning (Monday) after two oil tankers were attacked near the Strait of Hormuz. A third of the world's crude oil moves through the strait between the Gulf of Oman and the Persian Gulf.
Oil prices initially skyrocketed as a result of increased concerns involving the disruption of oil supplies in the Middle East. However, the rise in oil prices was short-lived. And much of the decline was a result of the U.S. stock market's avoidance of riskier assets like oil.
Both the United States and Saudi Arabia suspect Iran is behind the attacks. And this is largely because it came after the U.S. had increased its military presence to tackle the threat of Iran in a move meant to eliminate Iran's oil trading.
After the attack, the Saudi Arabia energy minister said there had been a significant amount of damage to both of the tankers. But he reinforced that there were no signs of an oil spill.
And to help you make the most money during this volatile time, here's a deeper look at what's happening to the price of oil…
What the Tanker Attack Means for the Price of Oil
At first, it was surprising to see oil prices were up 2.6%, while equities were down over 2%. But the stock downdraft finally caught up with oil prices.
Theoretically, oil prices should be heading higher thanks to a disruption to supply. But because of the stock market downturn – and potential meltdown – it can't appreciate in value.
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Today the global benchmark for oil, Brent crude, jumped up to $72.58 before it fizzled out again at around 2:50 p.m. to $69.92 a barrel on ICE Futures Europe. That represents a 4.08% decline.
On the New York Mercantile Exchange, West Texas Intermediates (WTI) futures increased 2.8% to a high of $63.33 before dropping another 3.8% to $60.93.
And much of oil's decline in price is a result of the U.S. and China failing to reach a trade deal on Friday. This means riskier assets like oil fell again as the Dow Jones Industrial Average (DJIA) has dropped 600 points (-2.56%).
Beyond that, China has implemented 25% retaliatory tariffs of $60 billion worth of U.S. goods in response to the U.S. tariffs of 25% on $200 billion worth of Chinese goods.
As the trade war continues, investors have become wary of the market. There will be slower global economic growth, and the growth of oil demand will also slow.
While oil is down after its wild day, analysts say it could still climb 1% to 2% depending on the level of uncertainty in the market. But how much it increases hinges on how big of a threat there is in the Strait of Hormuz.
For now, tensions in the Middle East appear to be increasing as well after the U.S. pledged an increased military presence over the threat of Iran. A conflict with Iran could send prices surging even higher. That's making this the perfect time to protect yourself by getting into one of our favorite oil plays.
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About the Author
Daniel Smoot is a Baltimore-based editor who helps everyday investors with stock recommendations and analysis. He regularly writes about initial public offerings, technology, and more. He earned a Bachelor's degree from Towson University.