Why Oil Is Still Underpriced

May 20, 2019: Why Oil Is Still Underpriced

Oil prices seesawed over the past week, jerked higher by tension in the Middle East but dragged down by fears of the fallout from the U.S.-China trade war. In fact, crude is trapped between those two forces, and will likely bounce around in the near future based on which factor appears to exert more influence on the market.

Oil saw upward pressure in recent days as the U.S. government seems in danger of rushing into yet another war in the Middle East. National Security Adviser John Bolton appears dead set on trying to escalate conflict with Iran – even as tensions ratcheted up quickly over the past two weeks, officials on Bolton’s National Security Council “were initially dismissive of the need to draw up de-escalation options,” CNN reported, a clear sign of Bolton’s intentions.

However, President Trump appears to be trying to tap the brakes even as he largely agrees with the “maximum pressure” campaign on Iran. He reportedly told the Pentagon that he does not want a war. After all, he campaigned removing the U.S. from endless wars in the Middle East. Nevertheless, having pushed the U.S. to the brink of conflict, dialing down tensions may not be so simple, especially with Bolton and Secretary of State Mike Pompeo still running the show.

Trump’s decision to withdraw from the nuclear deal last year, followed by sanctions on Iranian oil, sanctions on Iranian metals exports, and more recently, sending naval ships to the Persian Gulf – all of the moves are calculated to ratchet up the pressure and arguably to provoke Iran into reacting. The danger is that either side miscalculates.

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