The growing back-and-forth of strong words and threats between the United States and Iran has caught the attention of the oil market. The U.S. blames Iran for last week's attack on two tankers in the Gulf of Oman, a charge which Iran vehemently denies. This week came reports that Iran plans to enrich uranium in excess of the limits it agreed to in the 2015 nuclear deal with the Obama Administration, one year after President Trump withdrew the U.S. from the deal. The U.S. just announced an additional 1,000 troops are heading to the Middle East, while keeping the option of military action firmly on the table.
Despite all of this upheaval, the reaction so far in the oil markets has been a shoulder shrug. Crude oil has remained in the $50-$55 per barrel range that it seems to have settled at in recent months. Karr Ingham, Texas petroleum economist, tells KTRH the market has reached a "new normal," thanks to surging U.S. production and sanctions that have limited Iranian production. "We're talking about crude oil prices that are broadly 40-dollars-a-barrel lower than they used to be, and we are still supplying the market with growing production, and all of this can be attributed to growing U.S. production," says Ingham.
Thanks to this new supply surge, oil-rich nations like Iran no longer have the power they once did over the world's oil market. "I think markets are in such a condition now that it would be very difficult for Iran to have any long-term upward price effect on crude oil," says Ingham. "They could do something drastic enough to be a market mover, but even at that it would probably be just a short-term spike, and we would settle back to this new normal."
The biggest factor in the "new normal" is U.S. shale production, which has increased by five million barrels-per-day in the last four years. "The growth in U.S. production is the global market game-changer," says Ingham. "And I hope the U.S. consumer understands the benefit that has been afforded to them by this event."