Risk Premium Returns To Oil Markets As Geopolitical Tensions Rise
By Argus Media
OilPrice.com
Sat, 23 January 2016
Geopolitical risk premiums are likely to return to oil markets as the possibility of an attack on a large petroleum facility grows significantly amid rising tensions in the Middle East, possibly putting a floor on prices.
“The risk of an attack is greater than 50pc, which means it is more likely than not,” president of consultancy ESAI Sarah Emerson said on the sidelines of the Argus Americas Crude Summit.
Oil prices recently plunged to 13-year lows, to sub-$30/bbl, amid expectations a market oversupply will worsen as major supplier Iran ramps up exports following a lifting of sanctions, while the demand outlook remains weak as consumption in key market China slows. The supply-demand mismatch has kept investor attention away from the geopolitical unrest in the Middle East and the worsening economic and social crisis in producers such as Venezuela.
“Everybody has so far been focused on the oversupply,” chief commodity strategist at RBC Capital Markets Helima Croft said, explaining the lack of a risk premium in the market right now. The high level of global oil inventories is giving the market confidence that any disruption in supplies will be quickly filled in, she said.
The latest escalation in the row between OPEC members Saudi Arabia and Iran came earlier this month after Riyadh severed its diplomatic relations with Tehran in response to the storming of its embassy by Iranian protesters angry at the execution of Saudi Shiite cleric Nimr al-Nimr.
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