economy
Oil and gas prices will be lower but still elevated
The news about a ceasefire between the United States and Iran has sparked a global rise in equities and dramatic falls in the price of oil, both internationally and domestically. The price of West Texas Intermediate, the U.S. benchmark, fell by about 15% from about $112 a barrel to prices in the low $90s. Worst-case scenarios for energy prices and their effects on both the U.S. and global economies have been avoided. Moreover, social media posts by President Donald Trump suggest that over the next 14 days, the temporary ceasefire will be replaced by some sort of extended truce between the regime in Iran and the U.S.
TL;DR
- A ceasefire between the U.S. and Iran has led to a 15% drop in WTI oil prices, but fundamental disagreements and market tightness mean prices will remain elevated.
- The Strait of Hormuz remains constrained, and it will take months for oil flows to return to pre-war levels, with prices expected to stay in the $80-$90 range through year-end.
- The war highlights the importance of supply diversification, driving investment in regions outside the Persian Gulf, such as North and South America and Africa.
- U.S. shale producers are well-positioned to increase market share, but regulatory and permitting barriers need to be eased.
- Consumers will not see immediate relief in gasoline prices due to lags and the need to rebuild inventories, and oil markets are transitioning from shock to scarcity.
- Investors should consider exposure to U.S. energy giants like Exxon Mobil and Chevron.