Oil, War, and the Market’s Risk Premium

The oil market braced for impact in the past week, following U.S. military action against Iran. Crude futures hit nearly $80 per barrel up from the $50s in January.

This move may not sound dramatic at first glance, but the speed of the move tells us something important — the market is suddenly pricing in risk.

What’s interesting is that at present, there is no supply destruction or even projected long-term shortages. This pricing change is just risk.

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