US and Iran Tensions May Push Crude Oil Prices to $150 per Barrel

Oil prices globally may increase to more than 150 US dollars a barrel because of growing tensions between the U.S and Iran, said a think tank in South Korea.

The report given by the Korean Institute of Finance to the Strategy and Finance’ ministry, showed that there is a chance for oil prices worldwide to rise following the U.S. request for an Iranian crude oil embargo and Iran’s threats to obstruct the Strait of Hormuz, the mainĀ  waterway for shipments of crude oil.

The think tank cautioned that oil prices internationally may reach more than 150 dollars a barrel on the crude oil price chart due to the geopolitical threat. Furthermore, the government of South Korea has to be careful of the potential price weakening factor in the midst of continuously high levels of inflation expectation since the past year.

In December, imports of South Korea of crude oil from Iran declined to a low level in fourteen months to reach 639,281 tons. This is a sharp decline to its previous month’s import of 1,196,073 tons and 767, 051 tons on December of the past year.

Robert Einhorn, the nonproliferation and arms control special adviser of the U.S. State Department, recently expressed during his visit of three days to Seoul that they are encouraging their partners to decrease their Iranian crude oil purchase and their Central Bank of Iran dealings.

In the meantime, the KIF took note that although crude oil prices globally will increase the potential blocking of the Strait of Hormuz, the rise will not stay long for two reasons. The first is the negative correlation between the U.S. dollars and oil prices. Second is the anticipated low oil demand in the midst of the global economic decline.

The IEA or International Energy Agency reduced its 2012 forecast for daily crude oil demand all over the globe from the original 1.3 million barrels to only 1.1 million barrels.

According to the Korean Institute of Finance, the greenback, was anticipated to strengthen in the long term because of the fiscal crisis in Europe that causes downward push on oil prices internationally with minus 0.67 negative correlation with the United States dollars since 2010.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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