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Oil price volatility increases as Middle East tensions escalate

By A/S Global Risk Management.



Michael Poulson, Oil Risk Manager at A/S Global Risk Management. Image credit: A/S Global Risk Management


Updated on 06 Jun 2017 7:39 GMT

By Michael Poulson, A/S Global Risk Management

The market first learned about the brewing tensions between Saudi Arabia, UAE, Egypt, Bahrain and Qatar over the weekend. This escalated into a closure of transport links, including land and sea ports, a severance of diplomatic ties, and two weeks given to Qataris to leave these countries, among other things. The initial reaction by the market was a spike in oil prices. Prices stayed elevated until about 2pm Singapore/7am London when things made an about turn and then headed lower. It seems that the reason for this was the possible derailment of the extension of the oil cut deal agreed last month. Qatar is one of the smallest OPEC producers with a capacity of about 600k bpd. It is, however, the world's largest LNG and condensate shipper.

On the surface, the main discussion and focus in recent days has been the 1.8m bpd oil cut deal. However, upon taking a look at OPEC export figures for May 2017, it can be seen that shipments jumped more than 1m bpd to just over 25m bpd. Clearly, exports were not significantly affected by the curtailment of production.

More bearish news includes South Sudan saying that it would drill thirty more wells to increase oil production to 350k bpd by 2018 and the jump in US production, by more than ten percent, to 9.34m bpd. This number is set to increase going forward as more and more oil rigs have been put into operation over the past twenty weeks of consecutive additions.

Oil inventory data due for release post settlement during US trade today - additional volatility could be expected.



A/S Global Risk Management is a provider of customised hedging solutions for the management of price risk on fuel expenses. The company has offices in Denmark and Singapore. For further details about its risk management products and services, please call +45 88 38 00 00 or email hedging@global-riskmanagement.com.






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