Last week, US crude oil September futures fell 7.5%. US crude oil September futures closed at $55.76 per barrel on July 19. The S&P 500 Index (SPY) fell 1.2% last week. Usually, sentiments in the broader market and oil prices are interrelated. However, on July 19, rising geopolitical tension between Iran and the West might have dragged the S&P 500 Index, while the same factor supported oil prices.
Iran factor will help oil gain
At 2:44 AM ET on Monday, US crude oil prices rose by 58 cents from the last closing level. Although the IEA trimmed oil’s demand growth forecast, the standoff between Iran and the United Kingdom due to seized tankers might help oil prices rise this week. On July 4, the United Kingdom seized an Iranian oil tanker. In response to that, early in this month, Iran tried to capture a British tanker. However, on July 19, Iran finally succeeded to capture British oil-tanker.
Based on the EIA data, in 2016, around 30% of total oil transported by sea passed through the Strait of Hormuz. The rising security threat for oil-tankers could impact the global oil supply. Lately, the Brent-WTI spread started to move due to rising geopolitical tension. On Monday, the Brent-WTI spread expanded by 40 cents from July 19.
Among oil-weighted stocks, ConocoPhillips (COP) and Pioneer Natural Resources (PXD) will benefit from the expansion in the Brent-WTI spread. ConocoPhillips’s net income sensitivity with every $1 change in the Brent/Alaskan North Slope crude oil price per barrel is $150 million. The company’s same relationship with WTI crude oil is ~$30 million–$40 million. Pioneer Natural Resources’ oil output follows Brent crude oil prices.
Oil’s target price
This week, the closing level of $57.21 per barrel will be important for oil traders on the upside. More geopolitical tension due to ongoing sanctions on Iran might push prices near the psychologically important level of $60. The EIA’s inventory data on Wednesday will provide a key road map for US crude oil prices. If the inventories spread declines, US crude oil might close above $60 level this week. The inventories spread is the difference between US crude oil inventories and their five-year average.