After falling somewhat in January and February, oil prices are rising fast once again, surging "above 68 usd per barrel after closing at its highest level in six months last night as tensions escalated between Iran and the West over the 15 British sailors detained in the country since last Friday." Brent crude traded in London is now approaching $70 per barrel ($68.58 per barrel in this morning at 9 am, London time), up more than $17 per barrel from just $51 per barrel in mid-January. As Bloomberg notes, oil markets are "nervous and twitchy" on the Iran situation, with traders and oil analysts worried about potential threats to "the 17.5 million barrels a day of oil that goes through the Strait of Hormuz" - "the narrow opening that leads from the wells of oil-rich Saudi Arabia, Kuwait, United Arab Emirates and Qatar to world markets."
Meanwhile, U.S. oil inventories continue to fall, including "a surprise draw on crude in the week to March 23." According to the US Energy Information Administration (EIA), total U.S. oil inventories, excluding strategic reserves, are now 3.5% lower than a year ago. Crude oil inventories are 4%, or nearly 14 million barrels, lower than last year at the same time. And total motor gasoline inventories are 1.9%, or 4 million barrels, lower as we head into the summer driving season.
So what next? Keep an eye on oil inventories, and also on geopolitical tensions. If the situation with Iran cools off, expect oil prices to fall. If it heats up, expect them to keep on rising. My prediction: the situation with Iran will be resolved in the next few days, and oil prices will head back towards $60 per barrel again. Of course, having worked on the U.S. oil price forecast for several years at EIA, I am well aware that - as the joke goes - making predictions is hard, especially when they're about the future. We'll see.
I hope that your instincts are right. I'm assuming that "resolved" in this context means through negotiations rather than through applications of military force by either side.
There is a small matter of timing that concerns me, however. After today the Senate will be in recess for the Easter holiday until Tuesday, April 10th. The House will be in recess until Monday, April 16th.
In short, between this evening (March 30th) and at least April 10th, the Boys in the Bunker will have no adult supervision remaining in Washington.
As a few of us RK'ers have been discussing in one of Dianne's threads, at the moment Robert Gates appears to be the only key Administration player tethered to reality and capable of thinking through the potentially disastrous consequences of a major strike on Iran.
Another thing that concerns me is the "dog that doesn't bark." The Administration's initial response to the incident between the UK and Iran was so muted (i.e., non-existent), that it almost seemed as though the Iranians had thrown the White House somehow off-stride. Might the the Iranian seizure of the British sailors and marines have thrown a complication into an Administration timeline for military action against Iran?
I am watching Gates' every syllable very closely. He seems thus far (as with his recent remarks about the need to close Guantanamo and about the need for senior-level discussions between the U.S. and Iran) to be signalling that he is trying--more or less by himself within the Administration--to hold in check the Boys in the Bunker. If so, let's hope that he succeeds.
But if Gates were to suddenly resign in the next 10 days or so (rather than execute an order to launch massive air strikes against Iran), such an act of personal integrity would send a loud signal to one and all exactly what to expect next from the bunker.
And I'll bet that the Iranians have figured this stuff out before we have thought of it, and they will not release the British sailors and marines until mid or late April, though they might consider it in their interest to release the one female detainee as a goodwill gesture by Easter weekend. It is still unclear whether they will seek to create a trade of these British military personnel for the five Iranian intelligence/diplomatic personnel previously seized by the U.S. in Irbil. The Iranians also have a diplomat missing in Baghdad, and they suspect that the U.S. was behind his disappearance, true or not.