CBA - Nominate Now

Twitter

Welcome: Guest User

Register / Login

It is not all ‘geopolitical risk premium’ in oil prices

London, 8 March 2012

Focus: It is not all ‘geopolitical risk premium’ in oil prices. The lack of spare capacity and inventories is playing an equally large part, according to Amrita Sen at Barclays Capital. The spectre of geopolitical risks now concerns far larger supply-side players in Iran (3.5 mb/d), Iraq (2.9 mb/d) and Nigeria (2 mb/d). While geopolitical risks have clearly provided significant upside risk to oil prices, ultimately the fundamental backdrop is what determines the extent to which it matters.

"Back in 2010, when spare capacity was almost 6 mb/d, the ability of the oil market to absorb supply shocks was far greater, even after allowing for the fact that the heating up of the Iranian issue would have always had far greater consequences than Libya alone," says Amrita Sen.

"Today, it is the lack of buffers that is having the opposite effect on price volatility and market sentiment, in conjunction with the geopolitical risks. But, that is precisely why explaining the recent move up in prices purely as geopolitical risk premium would be a gross simplification, in our view."

Ends --


Commodities Now