Oil prices – the Iran factor

iran map.jpg

Oil price movements are now dominated by the Iranian nuclear issue.

Last month, they jumped $10/bbl to $146/bbl as news leaked of Israel’s training exercise against Iran’s nuclear sites. I’ve since talked to someone who was on holiday in Southern Greece at the time, and he says it was an amazing sight – the sky was apparently filled with planes.

Early last week, prices fell $10/bbl as news agencies headlined Iran’s leader saying ‘There won’t be war’. But his actual comments made it clear that he wasn’t backing down. Rather, he was arguing that the US/Israel were bluffing, and calling the threat of an attack a ‘joke’.

And then prices rose $10/bbl again. First, Iran fired missiles which it claimed could reach Israel. Then the Jerusalem Post carried reports from the Iraqi Defense Ministry that the Israeli air force had been using US bases in Iraq in further training exercises.Nothing is certain in life, except death and taxes. But it is hard to see markets becoming less volatile until either an attack takes place, or a peaceful solution is confirmed. And with oil now around $150/bbl, two quite different outcomes seem possible:

• In the event of an Israeli attack, prices might well rise $50/bbl to reach $200/bbl, at least temporarily
• But if diplomacy works, they could easily fall $50/bbl to $100/bbl

Both would cause problems from a chemical industry viewpoint. If prices do hit $200/bbl, it will be impossible to pass them on downstream. If they fall back, then working capital (stocks etc) will take a massive short-term hit. Prudent CFOs and business managers might well wish to consider hedging their purchases and sales against these possibilities.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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