Oil Surges in Price as Geopolitical Tensions with Iran Reach New Heights - Nathan McDonald (28/06/2018)

June 28, 2018

Oil prices are surging, and the scary thing is, we haven't seen anything yet.

Surging by 13% alone over the past week, the price of oil now rests above $74 USD per barrel at the time of writing.

This is the first time we have seen these prices since 2014. As a result, many wonder if we are going to test old highs, potentially sparking another slowdown in the general economy.

Others speculate this is simply a sign of the booming markets and the health of the economy as a whole. So which is it?

The reality, as is often the case, is more closely linked to geopolitical events, such as the now-unfolding negotiations with Iran.

Iran, as I have previously stated, will be the next target of the U.S. administration, as they ease off their harsh rhetoric towards North Korea and place this freed-up pressure upon the shoulders of the Iranian government.

The United States has ratcheted up their economic attacks against Iran the past few months, applying additional sanctions in order to beat the country into submission and force them to end their nuclear program.

On Tuesday, these attacks were once again intensified. President Trump called on other countries to join the United States in their sanctions against Iran and cease importing oil from the country.

This caused a 1.5% rapid increase in the price oil, signaling that the market believes other countries may indeed join the sanctions against Tehran.

The Trump administration is once again gambling on a "tough love" approach, and the Iranian government should be worried, given its past success with North Korea.

Still, this situation could either resolve itself diplomatically or it could take a severe turn for the worse. In this case, oil from Iran would essentially disappear from the general markets, causing a dramatic move higher in the price of oil.

For the short term, we can expect the price of oil to trend higher, until a resolution is reached or balance is restored. You can expect $90 USD per barrel over the next quarter to two, or even $100 USD per barrel if a diplomatic resolution is not reached.

Ironically, gold—which is typically linked closely to the price of oil—has yet to rise in price. In fact, it has trended lower in recent days, sitting at $1258.80 USD per oz.

Traditionally this is not the case, as oil is one of the biggest production costs in relation to the mining sector, including precious metals.

Additionally, precious metals typically rise when geopolitical tensions do. However, in this case, gold and silver are once again bucking the trend.

This means that either the market has faith in the U.S. administration’s ability to resolve this situation diplomatically or there is an opportunity to acquire precious metals on the cheap, before a significant move higher begins...