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Oil Prices Look For Steady Rebound
Dr. Kent Moors, Global Energy Strategist for Money Morning, tackled those questions today (Friday) on Fox Business and gave his latest prediction on the future for oil prices.
Despite the high level of worldwide supply for oil, Moors expects oil to rise from the amount of global demand. He noted that the effects of the embargo have been overshadowed by Europe's debt crisis and once those sanctions are felt oil will start to rise.
You can see all of Moors' analysis on oil prices in the accompanying video.
Three Reasons Oil Prices are Gushing
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For the first time in three weeks, oil staged a noticeable rally. Brent crude oil topped $100 a barrel on Tuesday and crude for August delivery jumped $3.80 to $87.57 a barrel.
Tuesday's rise in oil came off Monday's 1.4% decline and follows a selloff that has pushed oil down some 22% from its 2012 peak of $128.40 on March 1. In the second quarter, oil prices experienced their biggest quarterly drop since the financial crisis of 2008.
Moving oil prices higher on Tuesday was a trio of factors: Iran tensions, dwindling inventories, and a wager that further policy action to shore up global growth is on the horizon.
Oil Prices and Iran Tensions
Concerns about Iran had calmed over the past month along with the sagging worldwide oil prices, but those worries were stoked Tuesday by an army general in Iran.The general reportedly said that the country wouldn't "sit idly by" as the U.S. and Europe built a missile-defense shield program that could target Iran.
Late Monday, Iranian authorities staged missile drills to test weapons reportedly capable of hitting targets as far away as Israel. Iran officials also announced possible legislation targeted at closing the Strait of Hormuz, one of the world's most important choke points. Approximately 20% of the world's oil, nearly 17 million barrels a day, passes through the narrow strait.
Iran's move came on the heels of the European Union's full embargo on Iranian oil that went into effect Sunday. The EU embargo halts the vast majority of imports into Europe, ending exemptions for contracts signed before 2012, and barring insurance for Iranian oil shipments.
"Iran is always a factor and it has the potential to have a dramatic impact on oil prices," Ben Le Brun, a markets analyst at OptionsXpress in Sydney, told Reuters.
While Iran was the biggest catalyst behind oil's ascent Tuesday, it wasn't the only factor moving oil upwards.
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Oil Prices Due to Rise With Iran Oil Embargo Looming
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From May 1 to June 1 crude oil prices fell 21.8% from $106.50 to $83.23 a barrel, the steepest monthly drop since December 2008.
One week later oil is still hovering around the $83 mark. But why is oil still down?
Oil has also been hampered by weaker than expected economic reports in the United States, suggesting that the world's biggest economy is still struggling in its recovery.
Also the Eurozone debt crisis has had a strengthening effect on the U.S. dollar, which has helped push oil prices down as the dollar is the global currency for oil.
But many experts say the rise in oil prices is inevitable. From a projected 25% increase in global demand by 2015 to the possibility of Iran closing the Strait of Hormuz, there are many factors in play here.
As Money Morning's Chief Investment Strategist Keith Fitz-Gerald stated, "demand isn't the only driving force in oil prices." Also contributing, he says, "are geopolitics, supply constrictions, wars and tyrants with their hand on crude spigots."
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