Geopolitical risks to support the oil price – despite demand growth drop
22 April 2014 3:37am
THE BOOST the energy sector received up until early March is unlikely to be repeated as we move into the second quarter. Oil traders will be keeping an eye on several issues.
China, the world’s biggest importer of oil, saw a dramatic reduction in February imports, after a record high in January. If this trend continues, demand growth could eventually have to be revised lower. Meanwhile, the hope of reaching a comprehensive agreement between Iran and the West over the former’s nuclear intentions may have suffered a setback, given the breakdown in relations between Russia and the US over Ukraine. Iran has been exporting more than allowed under Western sanctions for the past four months, and this increases the risk of a crackdown if Washington feels economic pressure is being relaxed too quickly.
Russia’s involvement in helping to bring the Syrian conflict to a end may also have suffered a setback. This could potentially also destabilise the situation in Iraq further, not least considering the upcoming parliamentary elections this month. Libya’s oil production remains disrupted, and problems in the country look like they will become chronic, as a weak government fails to deal with rebels that have been disrupting supplies since last August.
Plenty of ongoing geopolitical risks will continue to keep oil markets supported and keep speculative investors from relinquishing their overall bullish exposure to the market. On balance, however, we continue to expect the average price of Brent crude to move lower towards $105 per barrel, but see limited downside risks below $100 per barrel. We see double-digit prices as a strategic buying opportunity.
Meanwhile, the US shale revolution is unlikely to reach Europe anytime soon, unless a strategic decision is made in the US to protect Europe with more than just military support. There is still a lot of resistance to shale gas exports from within the US, as the manufacturing industry fears that it could lose the competitive advantage that cheap gas provides. Further, the price of gas in Asia is currently much higher than Europe. So unless geopolitics gets in the way, US exports are expected to go in that direction. The first US export terminal will not open until late 2015, and already-established long-term contracts with South Korea, Japan and Indonesia should see gas move west from the US, not east.
Ole Hansen is head of commodity strategy at Saxo Bank.
In other news
The UK government is facing legal action from two of the world's biggest tobacco companies over its new “plain [Read more]
Former secretary of state for communities and local government Eric Pickles is to be knighted, 10 Downing Street [Read more]
Network Rail engineers have destroyed the Abbey Wood station as part of the Crossrail development that is expected [Read more]
The Championship looks set to once again be named the fourth most-watched league in Europe, following a seven [Read more]
The Costa Coffee owner said Brittain was "the standout candidate from a very strong field". [Read more]
Sugary foods may be taxed to cover the costs of treating obesity, a government minister has said.
European governments must increase efforts to adopt structural reform if “lasting stability and prosperity” [Read more]
Accounting, finance and economics - choose to study any of these subjects anywhere and you'll be likely to land [Read more]
Badly-behaved bosses are a nightmare if you're the unfortunate employee who has to work for them - but they're [Read more]
Last night hundreds of people in Kent were woken by a 4.2 magnitude earthquake, which occurred just before 3am. [Read more]
Are the UK's new crop of MPs actually any good at social media? [Read more]
The retail industry is in a state of flux. Consumers and technology are driving fundamental changes. And now, [Read more]
Newly re-elected Prime minister David Cameron will hold his first talks with European Union leaders today, as [Read more]
The Conservatives came to power on the back of an improving economy and with the promise of more improvement to [Read more]
Cert 12a | ★☆☆☆☆ [Read more]
Cert PG | ★★☆☆☆
Old Vic | ★★★★☆ [Read more]