Goldman Sees Geopolitics Haunting Oil Again With Unclear Effects
(Bloomberg) -- The oil market is grappling with intensifying geopolitical risks as uncertainty swirls over the impact of tensions surrounding nations such as Iraq, Iran and the U.S., according to Goldman Sachs Group Inc.
While Iraq’s government is clashing with Kurdish forces in the north of the OPEC nation, raising the prospect of output disruptions in the region, both sides have an incentive to keep oil flowing due to low production costs and “high revenue” available per barrel, according to the bank. And though the U.S. has hardened its stance against Iran, there’s still “high uncertainty” over whether it’ll reimpose sanctions curbing the Middle East country’s crude supply.
Oil jumped almost 3 percent over the past two sessions as weeks of tensions following a Kurdish referendum on independence from Iraq on Sept. 25 flared into open conflict in the oil-rich Kirkuk region. Still, the rally fizzled on Tuesday, with prices trading little changed, as two fields pumping a combined 275,000 barrels a day were shut amid the violence.
“The limited market response so far is therefore consistent with the high uncertainty on potential production disruptions, with larger moves only likely to occur should new disruptions actually occur,” Goldman analysts including Damien Courvalin wrote in a Oct. 17 research note.
The tensions are intensifying at a time when the fall in Venezuelan output appears to be accelerating, and as continued political instability in Libya and Nigeria threaten supplies, according to the bank.
The $1.50-a-barrel rally in Brent crude, the benchmark for more than half the world’s oil, since Friday morning could be interpreted as reflecting expectations for an outage of 250,000 barrels a day over three months, Goldman said.
Given the still elevated uncertainty on oil disruptions occurring, it could also be seen as a reflection of a 30 percent probability of a six-month 500,000 barrel-a-day disruption, according to the bank.
Baghdad piggybacks its exports from Kirkuk with Kurdish shipments through a pipeline -- run by the semi-autonomous Kurdistan Regional Government -- that transports crude to the Mediterranean port of Ceyhan in Turkey. Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, pumps most of its 4.47 million barrels a day from fields in the south and ships it from the Persian Gulf port of Basra.
Iraq can benefit from higher revenues for the oil only if it reaches an agreement with the KRG and “Turkey does not interrupt flows through its port of Ceyhan,” Goldman said. Yet this doesn’t rule out sustained production disruptions as Iraq has less downside risk, given its southern exports, than the KRG if flows to Ceyhan are interrupted and global oil prices rally, according to the bank.
In the case of Iran, Goldman said while “several hundred thousand barrels of Iranian exports” would be immediately at risk if secondary U.S. sanctions were reintroduced, it sees no immediate impact on oil flows. “Without the support of other countries, it appears unlikely that production would fall by one million barrels a day” to levels before world powers reached a deal with the Persian Gulf state to curb its nuclear program, the bank’s analysts said.
To contact the reporter on this story: Serene Cheong in Singapore at scheong20@bloomberg.net. To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Anna Kitanaka.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- ExxonMobil Racks Up Discoveries in Guyana Block Eyed by Chevron
- Oil Market Sentiment Has Improved Significantly
- EU, US Eye Collaboration on Nuclear Materials
- USA Driving Activity to Increase to All-Time Highs
- EU Electricity Export to Ukraine Up 94 Percent in Two Years
- China Coal Output Falls for First Time since Government Ordered More
- TC Energy to Sell Prince Rupert Gas Pipeline Project to First Nation
- BP Pulse Buys One of Europe's Largest Truck Stops
- UK CCUS Plans Outdated: Think Tank
- I Squared Eyes Full Ownership of Europe Gas Storage Firm
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- Rystad Looks at the Buzz Around White Hydrogen
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension