Oil prices could hit as high as $200 a barrel if Iran shuts down the Strait of Hormuz or engages in military conflict with the United States, Again Capital's John Kilduff warns.
Iran's leaders this weekend threatened to shut the strait, the world's most important seaborne transit lane for oil. The comments appeared to provoke a response from President Donald Trump threatening severe consequences for Iran.
Kilduff, founding partner at energy hedge fund Again Capital, said Brent crude — the international benchmark for oil prices — is on a path to $90 a barrel because the Trump administration is unlikely to issue many sanctions waivers.
However, if Iran opts for the "nuclear option" of shutting down the Strait of Hormuz, Brent could pop to several hundred dollars a barrel, Kilduff has warned.
"The numbers on a blockage or any kind of upset or military situation in the Strait of Hormuz, that is off to the races. Pick your number — $150, $200 — it goes sky high," he told CNBC. "Because we are talking about an abject shortage of oil then in the global market."
Brent crude is currently trading just above $73 a barrel. It hit a record high above $147 a barrel in 2008.
The ongoing tension between the United States and Iran highlighted risks to supply and trade disputes raised prospects for slower economic growth and weaker energy demand.
“The impact on oil supplies if U.S.-Iran tensions escalate significantly cannot be underestimated,” said Abhishek Kumar, senior analyst at Interfax Energy. “Market participants are also keeping a close eye on the U.S.-China trade war.”
Both crude oil benchmarks have fallen this month as crude supplies from Russia, Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries have increased and some unscheduled production losses have eased.
“The impact on oil supplies if U.S.-Iran tensions escalate significantly cannot be underestimated,” Abhishek Kumar, senior analyst at Interfax Energy, told Reuters. “Market participants are also keeping a close eye on the U.S.-China trade war.”
Both crude oil benchmarks have fallen this month as crude supplies from Russia, Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries have increased and some unscheduled production losses have eased.
Market sentiment has been driven by geopolitical worries, namely fears that supply could be disrupted by confrontation in the Middle East or that Washington’s trade dispute with its major trading partners could dampen global growth.
Iran, OPEC’s third-largest producer which pumps 3.75 million barrels a day, has come under increasing U.S. pressure, with Trump pushing countries to cut all imports of Iranian oil from November.
Saudi Arabia and other large producers are ramping up output to offset losses that are likely to come as the November deadline approaches.
(Newsmax wire services and Reuters contributed to this report).
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