When the war in Iran began on Feb. 28, Iran immediately cut off most access to the Strait of Hormuz, a vital transport route for about 20% of the world's oil supply. Since then, it has been a cycle of fragile ceasefires, flip-flop messaging, and naval blockades.
On July 14, President Donald Trump reimposed a naval blockade after yet another ceasefire negotiation fell through. And with consistent days of attacks, there are no signs of letting up from either side.
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There are many implications of the conflict, and it will inevitably affect the oil industry, but by how much? Likely a bit.
This has been a lucrative year for many oil companies. Some have been hurt because of rising crude oil prices, like some pure-play refineries; however, many more have seen profits surge and margins expand.
It's been a matter of supply and demand for oil companies. Blockades and closures of the Strait of Hormuz have caused major supply chain disruptions, and the domino effect has been felt in Americans' wallets at the gas pump.
The U.S. tried to cushion the blow by tapping into its strategic oil reserves, but there's only so much that it could help. And with the oil reserve reportedly at its lowest level since 1983, that doesn't seem like a sustainable strategy over the long term.
At about $79 per barrel, crude oil prices are far from the $100s we saw in March through May, but they're also noticeably higher than the $68 they were hovering near in early July, and they're likely to rise still more.
If the blockade continues, I expect $80 to be the floor for crude oil prices for the foreseeable future. This isn't great news for consumers, as higher crude oil prices affect everything from gas prices to travel costs to shipping costs. But, realistically, most oil companies won't be walking around pouting.
This is especially true for companies like ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX), whose businesses are built for resilience because they operate in all three phases of the energy pipeline. They explore and extract crude oil, refine and transport it, and sell end products (gasoline, diesel, etc.) that millions of people use every day. Still, they're far from immune to the negative effects of supply shocks.
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