Geopolitical Tensions May Impact Oil Prices and the Economy

Posted on 8-15-2019

Conflict in the Persian Gulf has spurred modest oil price volatility in recent weeks, but prices didn’t spike to high levels seen during some past conflicts.

That’s partly because rising U.S. oil production has shaken up the global oil market since 2010.

This week, Craig Siminski, of CMS Retirement Income Planning, shares some news “ripped from the headlines” and likely to impact everyone.

Crude oil prices still react to geopolitical events and other unplanned supply disruptions. However, global oil supplies exceeded demand by 0.9 million barrels per day in the first half of 2019, creating an oil glut that is helping to hold down prices.

The International Energy Agency predicts that global demand for oil will rise at a slower pace in the second half of 2019 than previously expected, while noting deteriorating trade and manufacturing activity.

Here’s an update on current events that are sparking oil price movements as well as some potential effects on the economy:

Risky Business

The British Royal Marines intercepted an Iranian oil tanker in the Mediterranean on July 4, and Iran retaliated by seizing a British-flagged oil tanker in the Strait of Hormuz on July 19.

The Strait of Hormuz is considered a “chokepoint” between the Persian Gulf and global markets because about one-third of the world’s seaborne traded oil passes through the narrow waterway.

Six oil tankers and a U.S. spy drone have been attacked in or near the same area since May.

Insurance rates for ships that navigate this high-risk area have increased tenfold since the conflict began, which adds to shipping costs and oil prices.

Brent crude — the benchmark for global oil prices — rose a modest 1% after Iran seized a British oil tanker on July 19.

But that was after prices fell roughly 6% during the previous week in response to concerns about the strength of the global economy, along with the return of U.S. oil production in the…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 21 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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