Oil prices are surging and the scary thing is we haven't seen anything yet.
Surging by 13% alone over the past week, we have seen a dramatic rise in the price of oil, as it now rest above $74 USD per barrel at the time of writing.
This is the first time that we seen these prices since 2014, sparking many to wonder if we are going to test old highs, which could potentially spark another slowdown in the general economy.
Others are speculating that this is simply a sign of the booming markets and the overall health of the economy as a whole. So what is it?
The reality, as is often the case, is much more closer linked to geopolitical events, such as what is now unfolding in regards to negotiations with Iran.
Iran, as I have previously stated, is going to be the next target of the US administration, as they begin to ease off of their harsh rhetoric towards North Korea, and place this freed up pressure directly upon the shoulders of the Iranian government.
The United States government has been ratcheted up their economic attacks against Iran over the past few months, applying various additional sanctions against the country, hoping to beat them into submission and force them to end their nuclear program.
On Tuesday, these attacks were once again intensified, as President Trump called on other countries to join the United States in their sanctions against Iran and cease importing oil from the country.
This caused a 1.5% rapid increase in the price oil, signalling that the market believes that other countries may join the United States in their sanctions against Tehran.
This "tough love" approach is once again being gambled upon by the Trump administration and the Iranian government should be worried given the past success with North Korea.
Still, this situation could either resolve itself diplomatically, or it could take a severe turn for the worse, with oil from Iran essentially disappearing from the general markets, causing a dramatic move higher in the price of oil.
For the short term, we can expect that the price oil is going to trend higher, until a resolution is reached, or balance is restored. You can expect $90 USD per barrel over the next quarter to two, or even $100 USD per barrel if a diplomatic resolution is not peacefully reached.
Ironically, gold, which is typically closely linked to the price of oil has yet to rise in price. In fact it has trended lower in recent days, sitting at $1258.80 USD per oz.
Traditionally this is not the case, as oil is one of the biggest production costs in relation to the mining sector, including precious metals.
Additionally, precious metals typically rise when geopolitical tensions rise, however, in this case, once again gold and silver are bucking the trend.
This means that either the market has faith in the US administrations ability to resolve this situation diplomatically, or that there is an opportunity to acquire precious metals on the cheap, before a significant move higher begins...
- As first seen on the Sprott Money Blog
