Amid never ending talk and speculation over how many more barrels of Iranian oil will be removed from global markets once sanctions slated to hit Iran’s oil production on November 6 take effect, some are claiming that geopolitical factors have driven the market just as much as supply fundamentals.
At Russia Energy Week in Moscow last week, both Saudi and Russian energy ministers said they see rising geopolitical risk as driving the recent oil price increase at a time when there is sufficient supply in the market. Of course, the notion of sufficient supply will be tested soon, as will both Saudi Arabia’s and OPEC’s spare production capacity will be called on to maintain this supply.
“Prices are continuing to rise and I think that proves the point that it is not the fundamentals of oil supply and demand that is behind this price increase,” Saudi energy minister Khalid al-Falih said on Thursday during the conference.
“The market has a strong influence,” he added. “Financial investors, speculators, sentiment, future expectations. The true elephant in the room is geopolitics. That has all combined to feed the market frenzy.”
Following al-Falih’s cue, Russian energy minister Alexander Novak agreed that geopolitical risks were having a disproportionate impact on global oil prices, which have recently breached new four-year highs.
Novak added that “the [oil]price today, in my opinion, reflects very significant uncertainty and risks, and in this sense the market is not yet balanced.”
However, going forward, supply and demand fundamentals, particularly the supply side of the equation, will be the shaker and mover of any future ramp up in global oil prices. Not only does the market have the jitters about less Iranian oil hitting the market, a development that is already unfolding at an accelerated pace, but persistent production problems in Nigeria, Libya and Venezuela (all OPEC members) remain, causing many to forecast Brent to breach $100 per barrel by next year.
The ongoing trade war with China could also marginally impact U.S. economic growth, but not to the same extent as a period of prolonged higher oil and gasoline prices which can wreak havoc on both industry and consumers alike.
China is also a swing factor in on the demand side of the Iranian (therefore global) oil equation, with Chinese state-run oil major and Asia’s bigger refiner Sinopec indicating two weeks ago that it would actually bow to pressure from the Trump Administration and cut Iranian oil imports by as much as half in October.
Full article: A New Era Of Geopolitical Risk In Global Oil Markets (OilPrice)