Goldman Waffles on Long-term Impact of Iraq, Iran Geopoltical Tensions

by Ship & Bunker News Team
Tuesday October 17, 2017

Crude prices on Tuesday barely moved at all after clashes between Iraqi and Kurdish forces caused prices to jump dramatically 24 hours prior: West Texas Intermediate rose 1 cent to $51.88 per barrel and Brent climbed 8 cents to $57.90.

And as usual with anything pertaining to the crude market, the experts are divided about the long-term impact of this and other geopolitical conflicts.

About the only consensus is the unpredictability of trader behavior: "The security premium built into prices from the (Iraqi-Kurdish) situation is in the process of vanishing," said John Kilduff, founding partner at Again Capital.

Abhishek Kumar, senior energy analyst at Interfax Energys Global Gas Analytics, added that other influences will surely affect trader activity in coming days: "Market participants will closely watch the rising oil-production profile in the United States and persistently high exports from the country - factors that will continue to limit gains in oil prices."

He was referring to the American Petroleum Institute's U.S. weekly petroleum inventory data, scheduled for release at end of day Wednesday.

Meanwhile, Goldman Sachs on Tuesday said that while the Iraq/Kurd dispute threatens oil output, the tensions between Iran and the U.S. are far more serious and a longer term threat to supply.

However, it safeguarded its warning by factoring in a lot of `ifs': on one hand, it said that "several hundred thousand barrels of Iranian exports would be immediately at risk" if the U.S. reintroduces sanctions against the Islamic republic; on the other, it noted that "there remains high uncertainty on potential reintroduction."

Goldman also noted that if the U.S. doesn't get support from other countries for its hard-line stance, it is unlikely production in Iran would fall by 1 million barrels per day (bpd) to the levels before Western sanctions were initially imposed.

Goldman played it equally safe in analyzing the Kurdish situation: "The 500,000 bpd Kirkuk oil field cluster is at risk with initial reports that 350,000 bpd has shut in, although this remains unclear," but it added that high revenue per barrel and low production costs in the  province might "incentivize" both sides to keep oil flowing.

By contrast, Amir Zamaninia, deputy oil minister for trade and international affairs for Iran, was far clearer and single-minded as he expressed his outlook to delegates at the Oil & Money conference in London on Tuesday.

He said, "The (U.S.) statement and policy ... has little or no effect and implication on our future plan in the oil industry."

Earlier this week, Jason Gammel, equity research analyst at Jeffries, offered an even handed opinion that while the Iraq/Kurd conflict could remove 600,000 bpd from the market, it would only result in a short-term supply shock and not one that would propel prices to $60 per barrel, as some media observers had suggested.