Investors and non-investors alike have surely felt sticker shock at the gas pumps lately. Oil prices are high as a barrel of West Texas Intermediate (WTI) crude oil currently approaches $85. Yet, recent oil price predictions suggest that petroleum could get even more expensive and possibly even double.
U.S. crude oil inventories did increase slightly during the past week, but the bigger story is the conflict between Israel and Hamas in the Middle East. As tragic events unfold there, petroleum market traders are on edge because Iran is allegedly assisting Hamas; retaliation by the U.S. would likely send oil prices higher.
How high could petroleum prices go? While $100 per barrel might seem like a high price, one big-bank analyst firm actually proposed a figure that would dwarf $100.
Rising Oil Prices Prompt Alarming Oil Price Predictions
Pierre Andurand, an oil trader and founder of Andurand Capital Management LLP, indicated that Saudi Arabia’s supply curbs will guide the petroleum price. “The Saudis will have to decide when and at what price to bring supply back,” Andurand explained. Hence, “an adjustment likely will come around $110 a barrel. So there’s room to the upside for prices,” he added.
Andurand’s above-$100 prediction, while alarming, isn’t even the highest one on Wall Street — not by a long shot, actually. Bank of America analysts warned that attacks on energy infrastructure in the Middle East could cause WTI crude oil to surpass $130, $150 or even $250 per barrel.
Here’s the worst-case scenario, as envisioned by the Bank of America analysts. If the U.S. retaliates against Iran for its alleged assistance of Hamas, the passage of petroleum-carrying vessels through the Strait of Hormuz could be at risk.
The Strait of Hormuz is known to be an important channel for the world’s crude oil supply. If that passage is closed, according to Bank of America analysts, oil prices could surpass $250 per barrel.
What Does This Mean for Investors?
Oil prices are difficult to forecast accurately due to the complex web of contributing factors. So, all oil price predictions should be taken with a grain of salt.
Nevertheless, oil above $100 and even $200 is possible if the conflict in the Middle East escalates. Investors across various market sectors would be impacted. When oil is very expensive, it costs more to ship products, and their prices tend to rise.
Therefore, investors might consider diversifying into safe-haven assets that could withstand recessionary conditions, such as utility stocks and consumer defensive stocks. With oil prices possibly poised to spike, it’s not a bad time to think about bolstering your portfolio with all-weather asset types.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
