Is $150 Oil Really Possible in Two or Three Weeks?

With the price of oil settling in the $90s despite the ongoing situation in the Strait of Hormuz, questions linger as to whether there’s another spike in the cards or if we’ll be gradually headed back to more normalized levels (think around $60 per barrel).

Indeed, perhaps the days of pre-Iran conflict oil prices are out of the cards over the medium term. Just because investors have shifted their focus towards AI and semiconductor names doesn’t mean that the Iran war is over and that the Strait of Hormuz will, in due time, get flowing with oil again.

Once things finally do get moving, there’s no guarantee that volumes will return to pre-war levels. In fact, it’s looking quite doubtful at this point. Even if there is a green light to set sail through Hormuz, the insurance situation represents a giant question mark. Even once it’s safe to sail through, there will certainly be some nerves, to say the least.

So, what’s the new line in the sand for oil, and could an “oil shock” that sees a return of triple-digit oil send shockwaves through the markets again, as investors brace for inflation and maybe even stagflation?

Inventories are dwindling, and a price spike might be weeks away

It’s hard to say, but $150-160 per barrel of Brent crude might not be as outlandish as it sounds, especially as something a bit further down the line goes awry. Notably, the world’s stored oil inventories might begin to run dry, and that could prove quite disastrous.

According to Neil Chapman, the senior vice president of ExxonMobil (NYSE:XOM | XOM Price Prediction), we could be entering a time when “we’re approaching unheard of inventory levels.” And that it’s up for “debate” how long it will take for “really, really low levels” to be hit. The next “two to three weeks” or “three to four weeks” was a debatable timeframe that Chapman threw out there.

Regardless, that’s a significant move that might cause another shock to the system, especially if oil were to suddenly go from around $90 to north of $150 in as little as a few sessions.

Given the risks, I’d argue that it only makes sense to hedge with energy stocks, especially if you’re underweight the sector, perhaps for an overweighting in tech and semiconductors.

Don’t count $150-160 out for oil just yet

Though another big oil spike to $150-160 or so seems aggressive, I’d pin it as incredibly plausible given the current situation and the dwindling reserves. For now, it’s unclear what could prevent such a move. Perhaps a move by OPEC+ or falling demand (think less air travel and driving) could prevent such a vicious upward spike.

But, for now, I think the inventory floor is worth watching as we move into the midpoint of the year. The big question is whether such an oil shock will spark a vicious correction and a giving back of the impressive gains enjoyed in the first half of the year.

Time will tell. In my view, I don’t think a correction can be ruled out, especially as the SpaceX IPO lands in a way that might cause pain elsewhere in the markets.

June is shaping up to be a turbulent month for markets

If tech retreats and oil spikes suddenly to $150-160, the next pullback could have the potential to be a stomach-churner. At the same time, higher oil prices will provide fuel for inflation, which is already a problem. That’s a big challenge right off the bat for new Fed chair Kevin Warsh.

As for hedging against the risk of a sudden oil spike, I like Occidental Petroleum (NYSE:OXY), especially given the promising technical setup and sensitivity to oil prices. Though, investors should be prepared for extreme volatility, especially given the many variables that go into moving the price of oil.

Exxon Mobil or any one of the big oil names is also a solid option. While only time will tell if $150-160 oil is in the cards, I do think it’s time to take such a risk as seriously. Perhaps now is a good time to book that flight before the ticket price rises again.