Free Trial

Crude’s $25 War Premium Could Rapidly Decline: BNEF

OIL

BNEF estimate a war premium of $25/b already embedded in oil prices even before Iran’s retaliatory strikes.

  • Crude prices usually have an inverse relationship with inventory levels, and given the supply/demand balance, current Dated Brent values should be closer to $66/b without the heightened geopolitical risks.
  • However, this varies from a more common estimate among analysts of only a $5/b geopolitical risk premium at its height following Iranian retaliatory strikes. These estimates put Brent at around $85/b looking at only supply and demand.
  • BNEF added that any escalation in the conflict could drive that risk premium up by a further $5-$10/b.
  • However, any de-escalation should cut the risk premium by $10-$15/b from current levels.
  • The geopolitical risk premium averaged $11/b in Q1, according to BNEF estimates.
  • BNEF’s calculations assume r-squared - for variance of price determined by inventory levels – at 0.71 and based the model on quarterly average oil prices.

Keep reading...Show less
152 words

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.

BNEF estimate a war premium of $25/b already embedded in oil prices even before Iran’s retaliatory strikes.

  • Crude prices usually have an inverse relationship with inventory levels, and given the supply/demand balance, current Dated Brent values should be closer to $66/b without the heightened geopolitical risks.
  • However, this varies from a more common estimate among analysts of only a $5/b geopolitical risk premium at its height following Iranian retaliatory strikes. These estimates put Brent at around $85/b looking at only supply and demand.
  • BNEF added that any escalation in the conflict could drive that risk premium up by a further $5-$10/b.
  • However, any de-escalation should cut the risk premium by $10-$15/b from current levels.
  • The geopolitical risk premium averaged $11/b in Q1, according to BNEF estimates.
  • BNEF’s calculations assume r-squared - for variance of price determined by inventory levels – at 0.71 and based the model on quarterly average oil prices.

Keep reading...Show less