Iran risk premium supports Brent’s price

The front-month ICE Brent contract has gained by $0.52/bbl on the day, to trade at $71.60/bbl at 09.00 GMT.

IMAGE: Oil pump jacks. Getty Images

Upward pressure:

Brent crude’s price has moved higher, with market participants laser-focused on further developments in Iran – the fourth-largest OPEC member, producing around 3.2 million b/d of crude oil.

Over the weekend, US President Donald Trump affirmed “over the next, probably, 10 days,” Washington will reach a deal with Tehran or take military action against it.

“Uncertainty over potential US action in Iran builds, with the US continuing to move military assets into the region and US President Donald Trump giving Iran a deadline to come to a nuclear deal,” two analysts from ING Bank said.

Meanwhile, the Indian Directorate General of Shipping (DGS) issued a strong advisory to all Indian seafarers and shipping companies to avoid Iranian territorial waters while transiting the Strait of Hormuz.

“The Strait of Hormuz continues to serve as the world’s most critical energy chokepoint,” Price Futures Group’s senior market analyst Phil Flynn said.

Downward pressure:

While there are no significant downward pressures on Brent’s price today, market participants will keep an eye on renewed possibilities of a negotiation between the US and Iran, as they prepare for a third round of negotiations later this week.

“In the case of a [Iran-US] deal, we would see a fairly aggressive erosion of the risk premium currently priced into the market – although reaching a deal is easier said than done,” ING Bank’s analysts added.

Representatives from both countries will meet for another round of discussion about the Iran’s nuclear ambitions, on Thursday in Geneva, Switzerland.

By Aparupa Mazumder

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