Blog: Oil Price Complacency May Soon be Tested
The mechanism for stabilizing oil is not sustainable.
When Gulf War 3 broke out and the Strait of Hormuz was closed, oil prices rose. The Strait was responsible for moving about 20 million barrels of oil per day, about 20%-25% of the world's consumption. With supply reduced by such a large amount, where else would prices go?
Yet here we are, 141 days since the start of the War, and oil is up, but not by the kind of numbers you get during an energy crisis. After all, this has been called the "Biggest Energy Supply Shock in History." While I've already written on the surprising underreaction of the markets, that was four months ago. Since then the level of complacency has only increased (if it's possible to have more complacency). So lets examine the possible reasons energy markets have been so sanguine, and whether that can continue.