No Love For Geopolitics In The Oil Pit


  • Oil markets are in the grasp of the bear narrative.
  • Positive crude storage report yesterday wasn't enough to release the bear grip, and don't even get us started with geopolitics.
  • RBC notes that the rise of Mohammad Bin Salman increases the risk of more aggressive foreign policy.

Welcome to the no love edition of Oil Markets Daily!

Geopolitics are getting no love in the oil pits. The bear narrative around a possible oversupply in 2018 coupled with slower than expected crude storage draws are taking over the market sentiment. Despite geopolitical risks in the Middle East at 5-year highs, the market hasn't inched one bit on the latest headline risk from the turbulent region. Is the market that complacent?

In a report by RBC published today, the sellside bank goes to describe that the recent rise for Mohammad Bin Salman to Crown Prince should pose a higher risk premium for oil prices:

King Salman removed Mohammad bin Nayef and elevated his son Mohammad bin Salman (MBS) to Crown Prince. MBS’ rise has already brought change, and this will likely mean more hawkish foreign policy and intensified efforts to confront Iran. Under him, the Kingdom has entered a costly war in Yemen and has driven the surprise blockade of a fellow GCC member. There remain questions. What comes next to counter Iranian influence? Is the Qatar blockade an opening act in a broader anti-Iranian offensive? President Trump in the White House likely means that MBS will encounter minimal pushback from Washington and a far freer hand to police his neighborhood. We contend that the region could be subject to more volatility and heightened risk. The geopolitical risk premium may therefore be set for something of a comeback. At the same time, given the lack of any near-term resolution, we are raising the risk rating for Qatar in our OPEC Watch List from 2 to 5 given the ongoing conflict between it and its GCC neighbors.

RBC goes on to rank the geopolitical risk premiums in the following:

Source: RBC Capital

Even with elevated geopolitical risks in place, the market

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