Overview: Rapidly Rising Supply Restrains Geopolitical Risk Premium

War has erupted in the Middle East, jeopardizing nearly one-fifth of the world’s crude oil flows just as summer demand takes off. The missile exchange between Israel and Iran instantly put a $5-$10 premium on benchmark oil, and the US’ sudden decision to bomb Iran, for now at least, ensured the glaring uncertainty will persist. Still, markets are wildly erratic. When news broke of Iran’s attack on US bases in Qatar and Iraq on Jun. 23, oil futures fell by over $4, sinking West Texas Intermediate to below $70. Perhaps traders believe that this will be the extent of the response from Tehran, which will now look to de-escalate.