Geopolitical factors may affect oil prices

A mixed bag from the EIA data released yesterday failed to offer any real direction to the markets.

Whilst crude stocks jumped by 1.7mio bbls - a larger rise than expected, gasoline stocks plunged by nearly four times the 1.2mio bbl consensus forecast. Brent crude traded down to the $116 level before recovering before the close. This morning the front month contract begins at around the $117.30 level.

Today’s action will focus on the continuing geopolitical factors that have formed the backdrop of bullish support for the year - namely Nigeria and Iran.

Continuing supply disruption in the Niger Delta continues to add to supply concerns and this has been compounded by the news that an explosion in Eastern Turkey on the main BP oil-pipeline has stopped supply flows. It is unclear how long the pipeline will be unserviceable.

Perhaps the main focus of geopolitical risk is Iran; with the deadline for a tangible response from the Iranians passed, the discussions amongst key governments will return to the probable imposition of further sanctions against Tehran until the uranium enrichment issue is progressed.

Any heightening of the friction between the two parties will raise concerns of major supply disruptions and this factor will continue to lend support to the market.

However, prospects of any real advance remain dim with any rally in the crude markets being met at the moment with selling pressure as concerns over global oil demand falls persist.

Today’s action will encompass $123 -$116.50 with any weakness tempered with supply fears and any strength met with corresponding concern over demand contraction: rangebound by any other name in the absence of fresh factors that will fracture the current equilibrium.