Oil Prices Jumped Again

Oil Prices Jumped Again
Stéphane Renevier, CFA

5 months ago2 mins

What’s going on here?

The price of oil jumped on fears of renewed instability in the Middle East.

What does this mean?

Oil prices had started to flatten out before the weekend, as investors expected rising interest rates to slow global economic growth and curb demand. That marked the end of a slow climb they’d started in July. But on Saturday, unexpected violence broke out in Israel. Now that retaliations have started in Gaza, too, fears are mounting about the region’s future – and that’s playing out in oil prices. After all, the Middle East accounts for nearly one-third of the world’s oil supply. And even if the conflict doesn’t immediately impact supply, any escalation that involves major oil-producing nations or sparks output cuts and sanctions would cause disruption. So, concerned about the range of situations that could follow, investors have already sent oil prices upward.

Oil price surges

Why should I care?

For markets: The world will be impacted.

Neither Israel nor Gaza are major oil producers, so there’s no direct threat to oil pipelines or supply chains right now. Plus, geopolitical events rarely interfere with oil prices for long. But with countries around the world already facing low oil inventories, the mere idea of potential disruptions could prevent prices from falling. And for major economies that are only just making headway against inflation, a rise in prices could partially reverse months of progress.

The bigger picture: Prepare your portfolio.

Geopolitical risk was already high around the world: Ukraine is still at war, there have been seven coup attempts across Africa in the last few years, and tensions are still high between the US and China. Investors need to brace for that volatility to impact their emotions, and therefore decision-making, and their portfolios: you’ll want to be very well diversified and make sure you’re not carrying more risk than you can handle.

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