Keeping an eye on oil prices

Oil prices swung sharply on Monday, moving from down one percent to up one percent, settling around $112.50 a barrel, as traders grappled with a lack of clarity over U.S.-Iran talks. The move came after OPEC+ agreed over the weekend to a modest production increase meant to cool prices. But economist Julia Coronado of MacroPolicy Perspectives poured cold water on that logic: “The reality is that the Strait of Hormuz is closed and most of that production simply is impossible at this moment.” The implication is that the cartel’s gesture is largely symbolic when a key chokepoint for global oil shipments remains effectively shut.

Oil markets and the Strait of Hormuz bottleneck

The core tension in oil markets right now is between policy signals and physical reality. OPEC+ announced a small production increase, which would normally nudge prices down. But the Strait of Hormuz — through which about a fifth of the world’s petroleum passes — is effectively closed due to the U.S. military action in Iran. Coronado’s blunt assessment was that most of the production OPEC+ is trying to add “simply is impossible at this moment.” The result is a market that is volatile and directionless, with crude bouncing around the $112.50 a barrel level. The episode did not offer a resolution or a forecast for when the Strait might reopen, but the implication is clear: until the physical bottleneck cle