The Major Wildcard That Could Send Oil To $120

July 11, 2017: The Major Wildcard That Could Send Oil To $120

Oil

The latest rally in oil prices ran up against a wall yet again, and the same fears about oversupply have not receded in the slightest. The expectation from most oil analysts is that there is very little room on the upside for oil prices and that we will have to wait until 2018 at the earliest before the market gets closer to “balance.”

But the one major wildcard for oil prices is geopolitics, which, however unlikely given the degree of supply overhang that still exists, could send prices up. But how high? The latest blockade of Qatar, which has mushroomed into a regional political crisis in the Middle East, would have caused a severe spike in oil prices in the past, even though Qatar is a relatively minor producer. However, the simmering standoff not only failed to register, but occurred at a time of falling oil prices.

If a crisis involving heavyweight oil producers was shrugged off by the market, it is hard to imagine some other event causing a sharp price spike, even if more barrels were on the line.

But that is exactly what some analysts are afraid of, warning that the markets are overlooking some potentially massive geopolitical problems looming just over the horizon.

"Venezuela's 2 million barrels of oil a day could literally go any day. Mexico looks poor. Azerbaijan's in trouble. China's own production is collapsing rapidly," Neil Dwane, the chief investment officer of European equity at Allianz Global Investors, told CNBC last week.

"One only has to have one mistake and the only thing you'll be talking about all morning is oil at $120."

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