Oil analyst: Israel-Iran escalations not out of equation yet

Oil prices (BZ=F, CL=F) have been moving back and forth since Iran's attack on Israel last weekend, with Israel ultimately retaliating Thursday night and raising more concerns of further escalation. With tensions rising in the Middle East and the potential for conflict to spread, concerns over the impacts on global oil production have also been raised.

Prosper Trading Academy CEO Scott Bauer joins The Morning Brief to discuss oil prices, the state of shipping in the Middle East, and impacts on consumers and investors alike.

Bauer outlines what risks are at stake and what to keep in mind during these tense times: "The real risk of this is that the Strait of Hormuz closes down or consolidates at a point where we can't get crude through there because 20% of the world's supply passes through there, so that is the big risk. It's not a risk of Iran is not going to supply anything or oil is not going to still be pumped — it's the delivery. So that's number one. Number two, where do we go from here? I know people are pegging $100 [per barrel], I think that's just an easy number... and what we have to keep in mind is when the start of the conflict between Russia and Ukraine began, we saw oil prices spike all the way to $125, I don't see that happening."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video transcript

BRAD SMITH: We're monitoring oil prices this morning after Iran downplayed Israel's attack on the country. To break down the moves that we've seen in commodities, we've got Scott Bauer, Prosper Trading Academy CEO here with us. Scott, great to see you just want to get your reaction to what we're hearing out of the region and the impact that you're seeing on oil prices.

SCOTT BAUER: Sure. Obviously, with what happened last night really emphasizes how much geopolitical risk is priced in to the price of crude right now. Whether it's $5 a barrel, whether it's $10 a barrel, you can see how volatile that is. And you know, when you break that down, you know, if we lived in a perfect world and there was none of this risk, where would oil be trading right now?

I don't know that exact number, but what I do know is that globally, economic numbers are really not so bad. So you know, where we haven't had a supply issue at all you really for the last month or so, the demand side of things is picking up. That to me is really what is, you know, keeping the pedal down on the price of gas and the price of a barrel of oil. Yes, the geopolitical risk is there, but I don't see a big pullback anytime soon here, unless we really start to see a deterioration globally, you know, economically. And we're certainly not seeing it here in the US.

SEANA SMITH: So Scott, if we do see any sort of escalation from what is happening right now, what has played out right now, if there is any sort of retaliation here from Iran, it doesn't appear that that is likely, but if that is the scenario, what could that potentially then do to the price of crude? Is that-- is that what it ultimately is going to take to trigger a bear move to the upside?

SCOTT BAUER: So a couple of things. First, the real risk of this is that the Strait of Hormuz closes down or consolidates to the point where we can't get you crude through there because 20% of the world's supply passes through there. So that is the big risk. It's not a risk of, you know, that Iran is not going to supply anything, or you know, oil is not going to still be pumped, it's the delivery. So that's number one.

Number two, where do we go from here? I know people are pegging $100. I think that's just an easy number because it's a psychological number. And what we have to keep in mind is when the start of the conflict between Russia and Ukraine began, we saw oil prices spike all the way to $125. I don't see that happening, but-- but the upside concern here, you know, the potential maybe is small of a percentage it might be, the potential for this to escalate into something globally, you know, that can't be taken out of the equation.

BRAD SMITH: Scott, it's interesting and, you know, I've been tracking your Twitter or X posts for some time now. And you know, we were talking about how wild of a week it's been. You put some numbers on this with the VIX hitting 19.56, highest intraday level since October 31 of last year.

When you think about what's going into that volatility right now, that fear gauge index, is this the market looking at the international conflict and saying we can't take off the table that this isn't contained, or is it more of the thought process around the Fed speak that we've heard over the course of this week as well, and even kicking the can on any type of rate cut?

SCOTT BAUER: Yeah. I think it is more eco data and the Fed as opposed to the geopolitical risk why we're seeing elevated VIX. But you know, we have to remember with everything that has been thrown at the market over the last few months or so, Fed strong economic data and the geopolitical risk, we're still sitting what? Only 4% or so off of the highs. To me, that's a win for the market, but that doesn't mean that we can't go lower.

I'm not suggesting that's going to happen, but there are still so many headwinds out there, any of which you individually could really put a damper on this market. And I think in the upcoming weeks when we get reports out of Microsoft and Apple and Alphabet and the rest of the big guys-- and we obviously saw Netflix last night-- that is going to have a big effect on psychology.

And if the market can remain at these levels while we're seeing the 10-year at 450-plus and approaching 5% while the Fed has changed course and gone from, you know, three rate cuts to maybe no rate cuts and potentially even a rate hike this year.

SEANA SMITH: Scott, real quick let's take a look at the price of gold because I also think that's worth pointing out here when we're talking about this flight to safety. It might be a bit surprising out there to investors to see gold actually under pressure here today. What does that tell you? Are we seeing some maybe short-term exhaustion within the gold market?

SCOTT BAUER: I don't know. I still think there's a lot of tailwinds to the gold market. We did see the initial reaction of that you classic flight to safety happened last night. Gold rallied over 1%. We saw the dollar rally. We even saw the yen rally. So all those classic flight to safety areas, those did get impacted last night. And you know, then as soon as w we got news or, you know, the market is saying, OK, this isn't as bad as what we had initially thought, we are seeing a little bit of a pullback here.

But I certainly think that you know the trend an and the upside to gold is still there, especially while there's everything going on in the Middle East and the potential for this to, unfortunately, you rise in a little bit, you know, whether it's this week, next week, in a month from now, that risk is still there.

SEANA SMITH: All right, Scott. Always great to get your insight. Thanks so much for hopping on with us this morning. We really appreciate it.