Just How Serious Is the Oil Crisis?

Over the long weekend in the U.S. observing Memorial Day President Trump posted that a deal with Iran was at hand. Hours later, Reuters clarified that any deal risked falling apart. The two countries needed to agree on lifting sanctioned Iranian funds, nuclear materials, and control of the Strait of Hormuz.

Oil prices fell by over 6.5% to trade at around $90. As prices fall, does that indicate the oil crisis in places like South Asia is over?

Integrated oil companies are complacent to fluctuating WTI crude prices. Exxon Mobil (XOM) and Conoco Philips (COP) are some of the stocks that benefit from an increase in U.S. oil production and refinery activities. However, the over three month closure of the Strait will limit oil supplies in the foreseeable future. Markets punished the currency of the Indonesian and the Philippines.

Traders are still betting that Iran’s government will let more ships pass the Strait. Gold (GLD) fell, oil prices dropped, and the U.S. currency (UUP) declined.

Your Takeaway

The oil crisis is at a serious crossroad. Energy inflation might rapidly decline if shipping traffic increases even slightly in the Strait. The market is a forward-pricing mechanism, so traders will welcome any progress in the three-month long stalemate.