The price of crude oil has surged 20% in the last year. Part of the price climb was the result of stronger global growth and emerging market demand. And in the last six weeks the oil price has headed north again.
In mid-February West Texas Intermediate (WTI) was selling at $59.13. By late March WTI was close to $64.70. A 9.41% rise in under six weeks.
Some of this recent climb has been down to noises from the Organisation of the Petroleum Exporting Countries (OPEC) and Russia that ongoing production curbs will likely be extended into 2019.
But the touching down on US soil of the private jet of 32-year-old prince Mohammed bin Salman for a three-week tour has created more oil price tension.
Iran deal on death watch
The Saudi prince – highly ambitious, business friendly, ostensibly a reformer (he lifted a ban on Saudi cinemas in December and ended a driving ban for women) – wants President Trump to take a tougher line on arch-enemy Iran. If Trump agrees, this could introduce more supply and price pressure.
Fresh sanctions on Tehran could even be imposed – President Trump has made it clear he has a low opinion of the Iran nuclear deal negotiated by the Obama administration.
There is a US quid pro quo for greater Saudi co-operation: more investment in US tech companies and the promise of more military sales to the Kingdom. Are internecine Middle East politics, then, set to drive oil prices higher? Not necessarily.
Sanjeev Bahl, analyst at Edison Investment Research, remains relatively cool on the prospect. He told Capital that any oil price above $60 a barrel will be viewed as "light at the end of the tunnel" by many exploration and production management teams, shifting focus from debt obligations to distribution and growth.
“There is potential for oil prices to move higher as inventories normalise, with the market reverting to pricing in a supply risk premium to reflect the probability of disruption.” This was apparent in early 2018 with disruptions to the North Sea Forties pipeline and Iranian unrest, he points out.
US hardliners move in
Last week the appointment of John Bolton as Trump’s security adviser – Bolton likes to quote George Washington’s advice that preparing for war is an effective way to prevent one – pushed Brent crude over the $70 a barrel threshold. Another hardliner in a key position in the White House has only ratcheted up market tension – and prices.