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There is no geopolitical risk premium on oil markets right now and the only thing that could change that is actual physical disruption of supply.
This is what fund manager Eric Nuttall from Ninepoint Partners told CNBC this week in comments about oil prices after news of two more incidents in the region emerged, one of them involving a fuel tanker.
Ninepoint Partners' Eric Nuttall says only a supply hit will move energy prices higher, as markets continue to ignore the Mideast risk. @willkoulouris @ericnuttall $WTI #Brent #redsea $DXY pic.twitter.com/lYuDoLvchW— CNBC's Street Signs (@StreetSignsCNBC) January 30, 2024
The Yemeni Houthis hit a fuel tanker transporting cargo for Trafigura on Friday, to which the U.S. Navy responded with strikes on Yemeni targets. Then, on Sunday, U.S. troops were attacked at a base in Jordan, according to official reports, with three casualties and several dozen injured personnel.
The news sent oil prices higher but they quickly shed some of their gains as traders’ focus once again moved to China and its demand prospects. The latest bout of worry about Chinese demand after the news broke that real estate giant Evergrande was ordered into liquidation, deepening fears of a real estate sector meltdown.
Not everyone agrees with Nuttall, however.
"If U.S.-Iran tensions escalate, particularly through a direct confrontation, the risk rises that Iran's oil supply is adversely impacted. Iranian's oil exports are likely the most vulnerable via potentially greater enforcement of sanctions," Commonwealth Bank of Australia analyst Vivek Dhar said in a note, as quoted by Reuters.
Following the drone attack that killed three U.S. troops, U.S. officials said they had no doubt the party responsible was an Iran-backed militant group and that the U.S. would respond.
"Have no doubt - we will hold all those responsible to account at a time and in a manner of our choosing," President Biden said in a statement.
It seems there is some war premium factored into prices but it might not yet reflect the full scale of the disruption risk. For this, as Ninepoint Partners’ Nuttall says, actual disruption would need to occur.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com