Gas Is Back Above $4 — And Could Keep Rising

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**Ed Elson** (1:46)
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Welcome to Prof G Markets. I'm Ed Elson, it is July 21st. Let's check in on yesterday's market vitals. The S&P 500 and the Dow declined as conflict in the Middle East escalated. The NASDAQ was flat, oil was volatile. More on that in a moment. The yield on 10-year treasuries rose. SpaceX stock hit a new low of $120 per share. And finally, Warner Brothers shares fell nearly 4%. Ofre judge temporarily halted its deal to get acquired by Paramount. The judge said the sale likely violates antitrust laws and scheduled a hearing for next month.
Okay, what else is happening? Conflict over the Strait of Hormuz keeps escalating. Now it is spreading to Saudi Arabia. As of Monday, the US had bombed Iran for nine consecutive nights in response to Tehran's attacks on oil tankers. And Iran had retaliated with strikes across the region. But yesterday, Iran's Houthi allies in Yemen declared a naval blockade against Saudi Arabia. This blockade stands to threaten the primary way in which oil has been able to get around the Strait of Hormuz through a Saudi pipeline to the Red Sea. These developments immediately shot the price of oil back up. Crude is now about $89 a barrel. And the national average for a gallon of gasoline has yet again hit $4 in America, up 15% in just the past week. So to discuss what is happening in the Middle East and also how it's affecting the price of oil, we are speaking with Matt Smith, Director of Commodity Research at Kepler.
Matt, great to have you on the show. A lot happening here. If you could just give us your initial reactions and a quick rundown, what has unfolded and how is it being reflected in oil prices right now?

**Matt Smith** (3:52)
We're tracking those tankers that are passing through the Strait of Hormuz here.
Our job has become increasingly more difficult as there's been different routes to try and traverse the strait. And so what you've essentially got is, you've got the Iranian route, which is right at the top, kind of the north. And then you have the pre-conflict highway, which was straight through the middle. And then at the bottom, you've got the Omani route, which is the kind of the southern corridor. As we've seen escalations increasing here, and you've seen some of the tankers being hit, they were passing the Omani route. All we're actually seeing now is, is essentially traffic grinding to a halt again, except for those Iranian tankers and friendlies that are passing the Iranian route. So, it's been undulating right over the last few months.
March, April, and even into May, the traffic was very, very slow. And then, just over the last month or so, we've really seen it pick up because of the signing of the Memorandum of Understanding between the US and Iran. Now that has basically been dissolved, and we're seeing an escalation here in attacks. As you mentioned, it's been nine consecutive nights. We'll probably have the 10th today. And so this is causing all prices to start to kick back higher again.

**Ed Elson** (5:10)
Just looking at what happened with Saudi Arabia and that blockade, it seems as though oil supply was figuring out a way to reroute itself away from the Strait of Hormuz or around the Strait of Hormuz.