The risk of oil supply disruptions from around the world has diminished, and rising non-OPEC production provides a “solid base from which to react to any escalation in geopolitical tension.”
In its January Oil Market Report, the International Energy Agency (IEA) said that there is plenty of oil sloshing around, despite the U.S. and Iran nearly going to war.
“We cannot know how the geopolitical situation will play out over time, but for now the risk of a major threat to oil supplies appears to have receded,” the IEA said.
“As was the case following the attacks on Saudi Arabia in September, once the initial fears of a sustained supply shock subsided, the Brent price rapidly gave up its $4/bbl spike.”
Oil inventories held in OECD countries is 9 million barrels above the five-year average, and there are also plenty of strategic stockpiles to call upon in the event of an outage, the agency said.
Still, while geopolitical risk has “faded,” it has not gone away entirely. The Trump administration may have refrained from all-out war against Iran, but the assassination of General Soleimani took the confrontation to new heights.
While Trump’s speech earlier this month was widely interpreted as one of “de-escalation,” he also prefaced his comments by saying Iran would never have a nuclear weapon. But, sanctions, “maximum pressure,” and the assassination of one of its top leaders will obviously provoke a response. With little left to lose, Tehran is backing out of most of its commitments under the 2015 nuclear agreement, a deal that the U.S. already exited nearly two years ago.