Higher Oil Prices Could Punish These Stocks

[Adrianduh]

A recent front-page article in The Financial Times warned of the prospects of $200 oil. The respected financial publication predicted that any further tensions between Iran and the West -- including a bombing raid by Israel to take Iran's nuclear facilities off-line -- would quickly create chaos in the oil pits. After all, Iran is the world's third-largest exporter of oil (after Saudi Arabia and Russia), so any shutdown of oil production in that country would create a sharp shock in the tenuous balance between supply and demand.

[aitzjida84]

It doesn't help that Libya's production remains well below recent peaks, and Yemen and Syria are seeing turmoil-related drops in oil output. These problems have already led to a too-lean oil inventory environment in Europe, even in the face of weak demand.

But it's time to dispel this skyrocketing oil price myth: $200 oil is unlikely to ever happen.

[agvamihuuzo]

First of all, Iran's nuclear threat has been in place for awhile. Israel has made noise about a preemptive strike for several years but would greatly prefer the United States to take the lead on any military action. Meanwhile, the United States has shown to have little appetite for any such confrontation and would probably seek to ratchet up current sanctions instead.

More important, oil prices at $200 would deal a crippling blow to the U.S., Asian and European economies long before it reached that mark -- regardless of whether such a conflict takes place. Indeed, by the time we got to $125 oil, a global recession would likely already be under way. By the time we got to $150 oil, demand would slump down to the level of supply. So it's highly unlikely that we'd see $200 oil anytime soon. (I am referencing West Texas Intermediate crude prices, which currently fetch about $95 per barrel. Brent Crude, a European benchmark, is typically about $20 higher).