DAVID BLACKMON: Oil Price Fear Premium Returns With A Vengeance

(Photo by Frederic J. BROWN / AFP via Getty Images)

The “fear premium” has returned to oil prices over the last two weeks after a long absence. It’s all related to the Iran conflict, and unfortunately no end seems to be in sight.

Back in the early years of this century, when I was conducting government policy work in Austin, I had a conversation about oil prices with a member of the Texas House of Representatives. This was amid a spiking of crude oil prices during those up-and-down years in the aftermath of 9/11.

He asked me why the price had shot up by something like $15 following that awful event since the market at the time was probably over-supplied according to all available data. (RELATED: Trump Says Warships From Many Countries Going To Strait Of Hormuz)

“Simple,” I told him, “It’s the fear premium.” That is the phenomenon in oil markets in which crude prices rise due to fear among traders that a conflict in the Middle East region could impact oil flows through the Strait of Hormuz. The market fundamentals don’t really matter much during such times.

When he asked........

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