The Straits of Hormuz have always been a pinch-point, the Achilles heel of oil tankers. But now Iran is taking this literally and pinching a whole tanker that happens to sail under a British flag – very likely in retaliation for one of theirs held in Gibraltar. On Saturday, British Airways flights to Cairo were suspended; “security precautions” cited. Approved by King Salman, another 500 US military personnel were sent to Saudi Arabia this week to beef up the Prince Sultan airbase just south of Riyadh.
Turmoil in North Africa and the greater Middle East seems a perennial, an upsetting background blighting generations, creating economic migrants and now, from Syria, the greatest ever flood of refugees. As a child in Spain I remember Generalissimo Francisco Franco sending troops to Western Sahara – still a disputed territory. Nearly 1m French ex-colonials moving from Algeria back to France. Lebanon’s civil war in 1972, Iranian girls at my boarding school being yanked back home in 1979 after Shah Reza Pahlavi was deposed.
Then came the wars: Afghanistan, Kuwait, Iraq, Libya – all against a decades-long background of ruthless strong-man leaders dominating politics, supported by Western allies. From 1950 to 1973 spot US crude oil prices held between $20 and $28 per barrel. Surging to $55 in January 1974, this was the first oil crisis that crippled the world economy. From 1980 to 2008 they see-sawed wildly between $125 and $17, again destabilising economies in doing so. A brief surge to a record high $165 in June 2008 marked the end of the commodities boom, which many blame on investment banks.
So much for the secular trends and their background, let’s move to the here and now. New York crude oil futures saw observed volatility return to the mean of the last decade at 30 per cent, although it did rally from 16 per cent in May to 44 per cent in June – both one standard deviation from the mean. Meanwhile, this year prices held around a mean at $60 a barrel, and have struggled to trade above $65 and $75 for almost five years. We feel they will continue capped there, with a good chance of a drop towards $45 sometime over the next 12 months.
Crude oil futures have been listed on the Shanghai International Energy Exchange since March 2018 and are priced as yuan per barrel. As there are 6.88 yuan per US dollar, this month’s low at 420 yuan equates to $61 a barrel; there is currently not enough to arbitrage.
Natural gas futures prices on Nymex are subdued, trading towards some of their lowest ever levels at $2.3 per MMBtu (British thermal units). The third-largest physical commodity traded, this is the national benchmark. Overcapacity in hydraulic fracturing business has affected oil services companies’ business, including the biggest, Halliburton, which reported second-quarter figures this week. They, like me, feel the industry will remain oversupplied this year and low or lower gas prices should be pencilled in.
And as it’s officially the US ‘driving season’, which starts on 4 July, we see that (mercifully for drivers) unleaded gasoline prices are still stuck below $2.25 a gallon – for almost five consecutive years. Another market with a clear cap.
