Where oil prices may go next, based on a history of Middle East conflicts
The spike in oil prices may soon stall and reverse course if the Israel-Iran conflict does not widen, according to historical data examined by TD Securities. Daniel Ghali, a senior commodity strategist at the firm, said in a note to clients that the initial moves in oil markets already put this week's developments on par with the average comparable event since the 1980s. "Historically, geopolitical risks typically faded within one month, and completely evaporated within six months, in line with subsequent macroeconomic headwinds and deployment of spare capacity. Expanded wars (incl. involving USA) have a more significant impact," Ghali said. In 14 similar events since 1948 identified by TD, it took an average of 2.36 months for oil prices to peak, with an average increase of 17%. However, that includes a 135% spike around the Yom Kippur War in 1973. Focusing only on events after 1980 shows a smaller average advance for oil prices. By comparison, West Texas Intermediate crude oil futures rose more than 8% on Friday. Prices have risen by more than 20% in all of June thus far, and some of the run-up before the conflict could be due in part to traders anticipating rising tensions. What happens over the weekend could play a big role in whether the spike in oil continues. Oil prices moved higher intraday Friday after Iran launched retaliatory missiles toward Israel. In particular, traders will be looking to see if oil infrastructure such as production platforms, pipelines or refineries are damaged in any back-and-forth exchanges between the two nations. Most Wall Street commentary from major investment banks pointed toward a narrow conflict and a short, limited move in oil prices. One outlier was Piper Sandler's global energy strategist Jan Stuart, who said in a note to clients, "we would not fade any oil price rally; this is war." Another variable to consider is the Organization of Petroleum Exporting Countries, or OPEC. A change in production from this group could offset or exacercebate the price impact of an Israel-Iran conflict. "Iranian crude grades may be replaced by Middle Eastern grades, but given regional politics, OPEC nations may hesitate to capitalize on weaker Iranian exports by ramping up the speed at which voluntary production cuts are unwound," Ghali said. — CNBC's Michael Bloom contributed reporting.
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