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Wells Fargo analysts remain favorable on commodities (CO1:COM), (NG1:COM), (HG1:COM), (XB1:COM) and energy (XLE) given the geopolitical conflict that remains a risk.
The movement of crude oil prices (CL1:COM), (UCO) is highly variable around the months surrounding the events in the Middle East, Wells Fargo analysts said in a recent note.
This has investors concerned about how high crude oil prices (CL1:COM) could go.
Roughly 20M barrels of crude oil per day move through the Strait of Hormuz between Iran and Oman. That is 20% of daily global demand.
In the days following Iran’s counterattack on Israel, crude oil prices barely moved. This is because markets had already priced in much of this risk in anticipation of the strike.
To compare, during the two months following the Gulf War, prices did spike 75% but then fell 18.5% in the two months after the U.S.S. Cole bombing.
“Events posing a direct risk to oil supply have typically had the biggest effect on prices,” Analyst Mason Mendez wrote in the note.
And although oil prices have not spiked, due to Iran’s proximity to the Strait of Hormuz, “risks [of] supply disruptions remain along with the risk of prices moving higher if the conflict escalates,” he said.
