NEW YORK, Jan. 3, 2020 /PRNewswire/ -- Following the
U.S. drone strikes that killed Qassem Soleimani, S&P Global Platts Analytics
expect an Iranian retaliation. Below is a quote and a FactBox
with the key stats.
Paul Sheldon, Chief
Geopolitical Risk Analyst, S&P Global Platts said: "We
believe that an Iranian retaliation is almost certain, following
the U.S. drone strikes that killed Qassem Soleimani. The chances of a broader conflict
remain below 50%, although risks are entering new territory. The
initial market reaction indicates Brent is capped at $70/Bbl, without another major incident. The
Iranian retaliation could take the form of a quick response by
proxies against U.S. allies and assets, but a larger response is
likely to be more carefully calculated and indirect in an effort to
avoid outright conflict. One-off incidents targeting Gulf oil flows
are possible, as are attacks on Gulf oil infrastructure, after the
Abqaiq incident did not trigger a U.S. military
response."
Factbox: Oil market jitters return after Iran-US geopolitical
risk rises
London — The oil market was on
tenterhooks Friday amid increased geopolitical risk in the
Middle East after Iran vowed to exact "harsh revenge" for US
airstrikes that killed its top military commanders.
The US Department of Defense confirmed late Thursday that
Iran's General Qassem Soleimani had been killed by the US
military in response to his role in recent attacks on American
diplomats and service members in Iraq and throughout the region, including his
approval of the attack on the US Embassy in Baghdad this week.
The killing of Soleimani in the Baghdad strike increases the likelihood of
additional attacks on Middle East
energy infrastructure and the possibility of military conflict
between the US and Iran, according
to analysts and market watchers.
"This is a seismic event in the region," Jason Bordoff, director of the Center on Global
Energy Policy at Columbia University,
tweeted Thursday. "Abqaiq was just the beginning."
"The US strike...signals a worrying increase in the tensions
between the two nations. Crude oil has responded as it should with
the risk of supply disruptions driving the price higher," said Saxo
Bank commodity strategist Ole
Hansen.
"Further upside risks now obviously depend on the response from
Iran but also other actors in the
region such as Israel,
Saudi Arabia, Russia and China."
"Revenge will come, maybe not overnight but it will come and
until then, we need to increase the geopolitical risk premium...we
expect financial flows to come in oil futures to hedge Iran's revenge," Petromatrix' Olivier Jakob said in a note.
TRADE FLOWS
**Despite the reports of oil field staff withdrawals in
Iraq over concern of retaliation
from Iranian backed militants, all upstream operations and exports
in Iraq are continuing normally,
according to local sources.
**The incident follows the major attacks in September on Saudi
oil infrastructure and a number of tanker-related incidents in the
Strait of Hormuz chokepoint earlier this year, which have raised
geopolitical risks in the world's biggest oil-producing basin.
**Iran's oil exports--already
hurting from US sanctions which have seen the country's s
production fall to its lowest level in more than three decades.
Iran produced an average of 2.43
million b/d last year from 3.57 million b/d and 3.79 million b/d in
2018 and 2017 respectively, according to S&P Global Platts
estimates.
**Iran has had to resort to
floating storage for its oil to cope with the surplus it has due to
sanctions. Iran's oil tankers are
holding almost 60 million barrels of oil at sea, the highest since
more than three years, according to Platts estimates.
PRICES
**Brent crude jumped 4.9% to hit a high of $69.90/b in early European trading Friday morning
as concerns over the geopolitical risk to Middle Eastern oil
infrastructure surged.
**The front-month Brent futures contract is now trading at the
highest since September 16, 2019, the
first trading day after attacks on Saudi
Arabia's pivotal Abqaiq processing facility and Khurais oil
field. The Saudi attacks saw the benchmark contact surge more than
$10/b to $71.95/b.
**In the Middle East,
Dubai crude futures tracked Brent
higher, with the March Brent/Dubai Exchange Futures for Swaps (EFS)
spread keeping pace with Brent's upward trajectory. The EFS was
pegged at $2.64/b at 1100 GMT Friday, near where it was assessed at
$2.65/b on Thursday.
**Spot VLCC freight rates for shipping crude from the Persian
Gulf to the Far East were little changed at 121 Worldscale Friday
as Asian markets continued to assess the potential impact of the US
attacks on the cost of shipping.
INFRASTRUCTURE
**Upstream workers at international oil and services companies
began evacuating staff Friday over concerns of retaliation by Iraqi
based Iran-back militants.
**Despite the staff withdrawals, upstream operations in
Iraq are continuing normally,
according to local sources.
**In addition to potential attacks on Iraq oil fields operated by Western oil majors
such as BP, ExxonMobil, Chevron, and Eni, the focus of potential
retaliation is on the Middle
East's two key shipping waterways; the Bab el-Mandeb Strait
at the southern tip of the Red Sea and through the Strait of
Hormuz.
-Red Sea **Most exports of petroleum and natural gas from the
Persian Gulf that transit the Suez Canal, or the SUMED pipeline
pass through both the Bab el-Mandeb and the Strait of Hormuz.
**In 2018, an estimated 6.2 million b/d of crude oil,
condensate, and refined petroleum products flowed through the Bab
el-Mandeb Strait toward Europe,
the US, and Asia, according to the
US EIA.
-Strait of Hormuz **The Strait of Hormuz is the world's most
important oil chokepoint because of the large volumes of oil that
flow through it. In 2018, its daily oil flow averaged 21 million
b/d, or the equivalent of about 21% of global petroleum liquids
consumption, according to the US EIA.
**A number of tanker incidents in the Middle East buffeted oil prices last year. The
British-flagged Stena Impero, which
had been detained by Iran for over
two months after being seized in the Persian Gulf, was released in
September.
**Ship operators in the Middle
East have been on high alert, and insurance rates jumped
after tanker attacks in the Gulf of Oman in May and June last year. The US has
blamed Iran for previous attacks,
although Iran has denied
responsibility.
Media Contact:
Americas: Kathleen Tanzy, + 1 917 331 4607,
kathleen.tanzy@spglobal.com
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