According to the Times of Israel and other sources, Israel now believes Iran or its regional proxies will launch a direct strike on the country by Thursday in response to the assassination of the political leader of Hamas in Tehran on July 31.
Israel has neither confirmed nor denied a role in the killing of the Hamas official.
It’s yet to be seen how – and if – the latest unrest in the Middle East will affect the energy industry, but it’s something Matt Smith, energy analyst for Kpler, will be keeping an eye on. He spoke with the Standard about how the markets are moving. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: As I understand it, oil prices have been rallying over the past week. Typical when geopolitical concerns like these are ratcheting up or no?
Matt Smith: Yes, but only in part. So I think it’s important to take a step back here.
So we saw a stark sell off in equity markets at the end of the week before last, and that was due to several factors. There was a weak jobs report in the U.S., while the Bank of Japan surprised the market with an interest rate hike. And that set off a series of knock-on effects across the globe.
Oh yeah, I remember this was when Wall Street suffered a huge loss last Monday, right?
Yeah, Friday into Monday. And then we rebounded from there.
And so even though there is this geopolitical backdrop, the main move from commodities and oil here is just because it’s sold off big time with a sell off in equities. And then as equities have rebounded, they’ve moved in correlation with that as well.
You tend to see that in times of stress, and assets tend to correlate. And that’s what’s happened in the last week or so.
Why are we not seeing oil prices being affected more by geopolitical concerns? Because I know this has been driving a lot of the conversation internationally.
It’s because there’s not been an immediate supply impact to oil in the Middle East. Although to your point, everything you said at the intro here is so important because it feels like the dial is being turned up in terms of tension.
So it seems like we are going to get some escalation from Iran here, from some tit-for-tat response. But aside from the Middle East, we’ve got other pockets of geopolitical tensions.
So with Ukraine, they’ve launched an offensive into Russian territory. That’s really important because that’s the first time Russia has been occupied since the Second World War. And then also in Venezuela, we’ve got protests there scheduled for Saturday, because of the disputed president presidential election.
And so there is a lot of geopolitical tensions simmering away right now in the globe, but it’s not necessarily transferring to oil prices.
Sorry to throw you a wild card here, but let’s say you have a regional war erupting in one of these zones. There’s already a war underway between Ukraine and Russia, obviously. But let’s say something happens in the Middle East. What does that do to prices and supply chains? I’m thinking in particular because there have been attacks, by the Houthis there in the Gulf.
It’s really if supply gets impacted.
So, you know, if we do see Iran retaliate here, and then we see a counter retaliation from Israel and focused on Iranian supply, then if that were to happen, we could see prices really push on higher from there. But until that happens, we’re only going to see a geopolitical premium being based on uncertainty more than anything else.
Very interesting. And so do you expect that as the week progresses, if these uncertainties persist, that we’re going to see rising prices?
Yeah, yeah. Because we’re talking about this this morning. There is the expectation that something is going to happen. And so until that happens, this uncertainty is going to support prices.
I want to shift to natural gas. Those prices have been really low. U.S. prices dropping below $2 per million British thermal units, or MMBTus, in recent weeks. What’s going on?
So natural gas prices, they have fallen due to weaker demand as we’ve had cooler than expected temperatures in some parts of the U.S. that has weighed on demand. But on the flip side of that, we’ve also been seeing supply increasing
But specifically, relating to Texas, you see Waha prices – that’s a hub in Pecos County, in the Permian Basin there. Those prices have turned negative, and for a record number of times so far this year, simply because there is too much supply and there isn’t enough pipeline connectivity to get the gas out of there. And so prices are negative.
