Oil demand has continued to strengthen as a primary driver of rising prices. Demand should start to ease, along with the slowing of the recent economic expansion. Thus, oil demand could be greatly inhibited if we see continued Middle Eastern tensions, which are looking to worsen rather than improve. Furthermore, the U.S. continues to saber rattle in the general direction of Iran.
The short-term impact could be a devastating spike in prices, followed by a negative stock market reaction, followed by a fall in oil prices.
We only have to look at how oil prices have reacted to Middle East supply disruptions in the last 20 years. All have had significant short-term impacts, with oil prices spiking and stock markets plunging.
In addition to disruption in the Middle East, U.S. shale production continues climbing, a factor that could keep a lid on oil prices. We believe oil prices should start to moderate and fall going into 2019, although supply challenges in Iran and Venezuela, along with geopolitical tensions, will likely continue to support higher prices and volatility in the short run.