Oil markets and geopolitics

Key takeaways:

– While the geopolitical factor has always played a role in determining the direction of global oil prices, it cannot be viewed in isolation of other market fundamentals.

– In the current market circumstances, geopolitical tensions have not resulted in a loss of oil supplies and therefore their impact is currently limited until proven otherwise.

– At the same time, OPEC holds spare capacity above its long-term averages therefore providing a cushion against potential supply disruptions. 

– On the demand side, the global economic outlook remains uncertain. This uncertainty stems partly from the lack of a clear policy direction regarding interest rate reduction by the US Federal Reserve. Additionally, the Chinese economic recovery post-COVID is precarious due to the structural issues plaguing the domestic real estate sector.

– The implications of the Red Sea disruptions include increased transit costs and longer transit times.