Oil: Geopolitics

In our earlier blog, Oil: too far too fast? we suggested that the oil prices are likely to take a breather in the short-term (until the end of February) due to the release of strategic reserves and the lower demand from China during the Beijing 2022 Olympics; as well as the temporary easing of geopolitical concerns related to Ukraine and Russia.

Unfortunately, today we have witnessed more upwards pressure on oil prices, as UK and US diplomats recommended their citizens to leave Ukraine in the next 48 hours. We do not remember Western countries providing recommendations to their citizens to leave the country in 2014, before the annexation of Crimea by Russia and the beginning of the military conflict in Eastern Ukraine. Despite these very scary announcements, we continue to expect that some kind of diplomatic solution will prevail, with some visible improvement over the next two weeks. God save Ukraine!

There is another important factor that is likely lower prices through increase in oil supply: the successful negotiation and agreement with Iran that would result in the lifting of sanctions that limit the country's oil exports. Here are some important excerpts of a Bloomberg article by Julia Fanzeres: "Oil Set for First Weekly Drop Since December on Iran Progress". Regretfully, at the time of publication of this blog, this is not the fact.

Officials from the U.S. to Europe have indicated that sides are closing in on a nuclear pact after talks resumed in Vienna on Tuesday.

“With inflation running wild across the U.S., energy traders are thinking the Biden administration might be more motivated to revive the Iran nuclear deal,” which could flood the oil market with over 1 million barrels a day, said Ed Moya, Oanda’s senior market analyst for the Americas.

A deal could tip markets into a surplus of as much as 1 million barrels a day in the second half, pushing Brent down by $10 to $15 a barrel.

The resumption of a nuclear accord with Iran could help alleviate some of the tightness in the supply-demand balance. White House Press Secretary Jen Psaki said a deal that addresses the concerns of all sides was in sight, while European Union foreign policy chief Josep Borrell said parties were “reaching the last steps.”

This blog does not provide investment advice. Please do your own research and talk to professionals before investing.

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