| | | Is Oil a Buy After the Price Crash?
by Keith Kohl
The oil market giveth, and the oil market taketh away.
If you had told me a decade ago that Israeli and U.S. bombs would rain destruction down upon Iran’s nuclear facilities, or that the Ayatollah’s regime was in serious jeopardy as he flees to become bunkmates with Bashar al-Assad in Moscow, I would’ve chuckled.
Those unlikely events are one thing, but if you then followed it up with the notion that oil prices would crash less than a week after both of those events took place, I would’ve straight-up thrown you into the loony bin.
And yet here we are, watching crude prices take a beating less than a week after our B-2 Spirit bombers quite literally mopped up Iran’s nuclear sites.
Just how bad have things gotten for oil prices? Well, oil is trading more than 16% lower than where it was last Sunday.
Now is when things are going to get interesting.
So let’s get the order of events straight for a moment.
First Israel unleashes a two-week campaign that establishes air superiority within Iran’s borders; WTI crude prices surge above $70 per barrel. Okay, check.
Then, the aforementioned U.S. bombers swept through like a cleanup hitter and obliterated the spots that Israel missed; WTI prices rose above $75 per barrel for the first time since July of 2024. Okay, check.
Two days later, Iran responded by striking military bases inside Qatar; WTI oil prices then crashed more than 13% to around $65 per barrel. Wait… what?
To make matters worse for anyone expecting a price surge, Iran’s bluff to close the Strait of Hormuz drove sentiment even more bearish. Granted, it truly would’ve been economic suicide to even attempt to do so, and Iran’s navy would be anchored at the bottom of the strait within days if it tried.
This is the oil age we live in, dear reader, when up is down, down is up, and the oil markets embrace geopolitical risk with open arms. Have we finally entered a new era where the geopolitical premium is no longer enough to drive bullish sentiment?
Perhaps.
But here’s the dirty little secret I mentioned earlier this week: Don’t pay attention to the short-lived catalysts like what took place last week. Remember, neither the U.S. nor Israel were actively targeting what truly mattered for oil markets — Iran’s oil exports.
That’s what would’ve driven crude prices well into triple-digit territory. If Trump decided to take out Kharg Island’s export capabilities, we would be having an entirely different conversation right now.
He didn’t… nor will he.
In fact, President Trump went the completely opposite direction after declaring that he wanted to go full MIGA and help make Iran great again. What’s going to be interesting is watching the people react in disbelief to oil prices rising as a tentative peace settles over the region.
Why? To understand why prices will strengthen over the summer if a peace deal is reached, you have to turn your eyes further east to China.
You see, up until this point countries like China and India — which account for most of global oil demand growth — have been more than happy to buy their crude supply at a steep discount. India became the largest buyer of Russian oil, which had a price cap that effectively allowed them to scoop up incredibly cheap barrels from Putin.
Meanwhile, China was the primary beneficiary of Iranian sanctions. You see, Iran was forced to export their oil through black market channels (via Malaysia) at a nice discount. If a lasting peace is reached, those barrels would simply go back on the books and China would no longer get the markdown they’ve enjoyed for so long.
But you know what? China has been preparing for this moment for years, and they’ve already found a new source for their crude addiction. This time they’re tapping into a source of oil much closer to home, and far more important to our refineries along the Gulf Coast.
Dan Steffens
Energy Prospectus Group |
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