Oil stabilizes as geopolitical risk cools

Oil prices have recouped some of the losses posted on Monday as fears of an escalation between Iran and Israel dissipated.

Brent crude was trading above $87 per barrel and West Texas Intermediate (WTI) remained above $82 per barrel as the news about fresh U.S. and UK sanctions on Iran failed to impress traders.
According to a Bloomberg report, the U.S. sanctions, which are due to be passed by Congress this week, may end up not being enforced at all. The reason? President Biden would be wary of doing anything that could further push retail fuel prices higher with elections just months away.

“Oil traders are nonchalant because they know Biden will certainly sign whatever waivers are necessary to keep Iranian oil flowing into the market just as he is keeping Russian barrels flowing into the market,” an analyst with investment advisors Capital Alpha Partners told Bloomberg.

According to another firm, energy consultancy ClearView Energy Partners, the enforcement of the new sanctions could add $8.40 per barrel to crude oil prices. That’s not something a president running for re-election and already losing popularity fast wants to see.

On the other hand, bullish factors for oil in the form of geopolitical risk in the Middle East appear to have largely fizzled out, at least for the time being.

"The unwinding of geo-political risk premium has dented crude oil prices recently as supply was not disrupted meaningfully," the founder of India research firm SS WealthStreet told Reuters.

"While there are no indications of an imminent full-scale war between the countries involved, any escalation in tensions could quickly reverse the current trend," Sugandha Sachdeva added.

"The geopolitical backdrop is still very fraught with so many risks at the moment, so clearly we're going to see a lot of volatility until there's a lot more clarity around it," ANZ analysts said in a note, commenting on the latest developments in the world of geopolitics.