Monday, 10 April 2017

Return of oil’s ‘risk premium’ hinges on Syria allies Russia and Iran

In Oil & Companies News 10/04/2017

The response of Russia and Iran to U.S. missile strikes on Syria will be a crucial determinant of whether the “risk premium” returns to benchmark oil prices, commodity strategists and economists told CNBC.
Crude oil futures jumped by as much as 2 percent after the U.S. military attacked the Shayrat air base near Homs with 59 Tomahawk missiles in response to Syria’s alleged use of chemical weapons during an air attack Tuesday on a rebel-held area.
In the immediate aftermath, whether this is the prelude to deeper U.S. involvement in Syria will preoccupy oil traders, as will the response of Iran and Russia — major oil producers and staunch allies of Syria’s President Bashar Assad.
The missile strikes “signal a change” in President Donald Trump’s “approach to Syria and with that his efforts to mend fences with Russia,” Ole Hansen, head of commodity strategy at Saxo Bank, told CNBC in an email. “[Russian President Vladimir] Putin’s response, therefore, has to be watched closely.”
Many strategists said the initial surge in oil prices reflected fears of the conflict escalating in the region and a possible spillover effect on tanker-borne supply, particularly through “choke points” like the Strait of Hormuz in the Persian Gulf. Beyond that, regional politics and the delicate balance of state actors in Syria and how they react remains the next key risk.
“This is a short-term spike as traders price in a possible supply route disruption,” said analyst Jonathan Chan of Phillip Futures in Singapore. “However, if this conflict prolongs or escalates with Russia possibly intervening on the Assad regime’s side, there may be further upward adjustment on the geopolitical risk premium.”
The jump in prices was unlikely to last as well-stocked inventories globally should cushion any future supply disruption. “The world still awash in oil,” Hansen said. “The risk of this developing and impacting oil supplies from the region, especially from Iraq is very limited.”
UBS commodity strategist Giovanni Staunovo added: “Syria is a tiny oil producer and there are no key oil pipelines which could be hit. Today’s oil rally might lose steam or even reverse during the day unless the airstrike heightens tension between Russia, Iran or Iraq and the U.S.”
Many commodity strategists agreed it was premature to speculate how U.S. involvement in Syria, which may possibly involve even regime change, would play out.
“The strike, at least for now, appears retaliatory rather than the indication of the beginning of direct involvement by the U.S. in Syria,” said commodity strategist Harry Tchilinguirian of BNP Paribas. “Pending the next developments, the recent oil price move may start to shift back. It is too early to tell at this juncture.”
Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington-based think tank, didn’t believe the U.S. missile strikes on Syria would be a “game changer” for oil markets because traders appear to have become inured to headlines reporting instability or upheaval even in the oil-rich Middle East and North Africa.
“It may be that the market has gotten used to the ‘risk’ and embedded it into the price,” Luft said, but he offered this warning: “The only missile that can move the market in a significant way would be one launched at North Korea — not the Middle East.”


Source: CNBC