Personal Finance’s Elliott Gue shares his outlook for crude oil in the coming months, and how the tension with Iran could influence the oil market.

Whither oil prices? We’re here with Elliott Gue, who is going to talk about where he sees oil going and whether it’s going up or down from here.

Well, I think oil prices are probably pretty well supported on the West Texas intermediate side, sort of in the low $90s area. Brent Crude Oil, I think, is going to be well supported around $100. The reason being is that oil supply is actually still pretty tight worldwide.

This year, we’re probably going to see around 1 million barrels a day of oil in demand growth but only about 600,000 or 700,000 barrels a day of supply growth outside of OPEC. What that means, of course, is that OPEC is going to have to produce more oil. That means Saudi Arabia has to dip into some of their spare capacity, which is already near record lows.

So as they dip into spare capacity, that’s really tightening up the oil markets. So I think that kind of puts a floor under oil.

At the same time, when oil prices really spike up there—when West Texas Intermediate gets up around $110 or Brent gets up over $120—you start to hear a lot more about demand destruction, and that tends to put a cap on all prices. So I think we’re kind of stuck in this volatile range between the low- to mid-$90s on the downside, maybe some spikes into the $80s at times, and sort of that $120 range on Brent on the upside or $110 on WTI. I think we’re kind of stuck in that range.

Now, within that, there’s all of this talk about Iran and Iran’s taking renminbi now and moving outside of OPEC…and if Israel strikes, the US strikes because of the nuclear facilities, what that’s going to do to the price of oil? I mean those are obviously too difficult to predict, but are they somewhat priced in already? I mean, I’m sure if we’re thinking about it, the oil market is thinking about it.

Well, it’s definitely factored in there. I think that the consensus opinion is that a full-scale attack on Iran that would disrupt all flows out of the Persian Gulf is a relatively low-probability event, probably a very low-probability event, if for no other reason than nobody wants to see where oil prices were to go if that were to happen.

I think you could easily see $175 oil, maybe even $200 oil if that were to happen, because that would be not only affecting Iranian production, but also obviously Saudi Arabian production and production from that whole region, which is a lot. And they are a major exporter, of course.

So I think you could see a spike in oil prices, which would immediately create demand destruction, and I think it would result in an eventual decline in oil prices back down to that $120 range. So I think it’s factored in to an extent. It’s just that the consensus is a very low probability.

And even with the demand destruction, you’d still paying a price premium there where you’d be paying $120 as opposed to it going down under $100, which would be realistic.

Right, and I think that’s one reason that people are kind of unwilling to short oil, is in the off chance that something does happen and oil prices do go to $175 a barrel, that would be very costly. And it could happen virtually overnight, because it’s a psychology thing really.

So nobody really wants to short oil, so that’s also another thing that’s keeping oil prices from going too far down.

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