Oil traders don’t want to think about the worst-case scenario and lap up every word of U.S. President Donald Trump about a potential deal with Iran, but the market needs to brace for a spike in oil prices in July because four months of closed Strait of Hormuz is a recipe for a “disaster” and global recession.
These were the comments from Fereidun Fesharaki, Chairman Emeritus of energy consultancy FGE NexantECA, who told CNBC early on Monday that the oil market and the equity markets are at a stage where “any news is good news” regarding the possibility of a U.S.-Iran deal.
“Nobody wants to think about the worst-case scenario. So everybody thinks every news is good news,” Fesharaki told the CNBC Access Middle East program.
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“They really think this is a change. There is no change. We are not nearer a peace agreement than we were several weeks ago,” the oil market expert said, commenting on the latest signals from Washington that a peace agreement could be imminent.
The deal itself would aim to reopen the Strait of Hormuz, end the war, and see Iran give up its enriched uranium. The first stage of the agreement would be a 60-day extension of the ceasefire, during which time traffic would resume through the Strait, and nuclear negotiations would continue.
Yet, FGE NexantECA’s Fesharaki warned against too much optimism in markets and advised traders to look at the actual shortage of crude and products that are not getting out of the Strait of Hormuz.
Amid this shortage on the physical market, “sooner or later we get to the trigger point,” Fesharaki said.
At some point in July, the oil market will get to this trigger point “where the prices will go for a huge jump,” the expert told CNBC.
The wishful thinking that we’ll get over this or somehow President Trump could negotiate a deal is just traders misreading the market, Fesharaki noted.
By Tsvetana Paraskova for Oilprice.com
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