What this could mean for energy markets

What this could mean for energy markets

A direct confrontation involving Israel, Iran, and the US that disrupts oil supplies was the worst-case scenario for investors following Hamas’s attack on Israel on Oct. 7, 2023. Those concerns have grown in recent months, sending oil prices nearly 20% higher in 2024.

Elevated oil prices filter through the economy in numerous ways:

• The most obvious: Average US gas prices have jumped about 50 cents per gallon since early January to ~$3.70…and that’s before the summer travel season gets underway.
• Higher oil prices are broadly inflationary because they raise costs for any company moving goods (Target, say) or people (Delta).

That’s why spiking oil prices reflect “the most serious threat to the economy,” Moody’s chief economist Mark Zandi told CNN about the geopolitical tensions in the Middle East.

But rising oil prices are about more than Middle East tensions. The OPEC+ group of producers has cut output, demand for fuel has been greater than expected due to the strong economy, and Ukraine is launching drone attacks against Russian oil refineries, curtailing supply.