Oil prices this week are responding to what we call a “fear premium” based on tensions in the Middle East sparked by a very vague claim of “sabotage attacks” on Saudi oil tankers off the coast of the UAE. But with the Middle East being what it is - an eternal tinder box that external powers like to shake up every now and then - the so-called fear premium tends not to last, even under a U.S. president with a dangerously loose grip on foreign policy. Speculators have rather short attention spans when it comes to geopolitics, which is why prices settled down on news of growing U.S. crude inventory on Tuesday and Wednesday, before returning to the fear premium as OPEC prepared to convene over Middle East tensions. Speculators don’t make long-term bets on war, necessarily. Instead, they bet on whatever will dominate the media as they know that it is the media that shapes oil market narratives.
On the Oil Front:
The “fear premium” moved to Iraq this week, with Washington evacuating non-emergency personnel in a move that has prompted the operators of mega oil projects in Iraq to closely monitor the situation for fear of a breakdown in security over Trump’s warmongering with Iran. Reports that Exxon was actually evacuating staff have not been confirmed by the oil giant itself, and claims of intelligence indicating a potential Iranian attack are vague at best.
Why Iraq, exactly? While Iran cannot take on the US in a…