Risk Premium Returns To Oil Markets As Geopolitical Tensions Rise
“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.
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“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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Members of the Iranian diplomatic mission to Riyadh have been asked to leave Saudi Arabia within 48 hours, Saudi foreign minister Adel Jubeir said yesterday. Jubeir said the attack on the Saudi embassy in Tehran was similar to attacks against the British embassy several years earlier, as well as on the U.S. embassy in 1979.
