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Iran Protests Boost Oil Bulls

Norbert Rücker, Head Macro & Commodity Research, Julius Baer, weighs in on the political situation in Iran and its impact on the Oil market.

"The protests in Iran add more fuel to the already bullish oil market mood. The situation is in flux but oil production disruptions remain a very distant threat so far. We believe that today’s oil prices project an overly rosy picture, stick to our cautious view and see the market at risk of profit-taking.

Geopolitics remains a driving force of oil prices in 2018. The protests in Iran dominate the news headlines and have struck a bullish tone in the oil market. The situation is in flux but the unrest looks less organised and thus cannot be compared to the green movement demonstrations of 2009 and 2010. Oil production disruptions so far remain a very distant threat. Instead the news has lent further support to the already bullish market mood. Betting on further price gains has become an even more crowded trade in both Brent and West Texas Intermediate futures contracts over the past weeks. In our view, however, prices above USD 60 per barrel project an overly rosy picture, so we see near term downside. Although strong demand has indeed been tightening global oil supplies as of late, the market largely ignored less price-supportive news. Disruptions in the North Sea have been removed with the Forties Pipeline system having resumed full operations. US oil production surpassed the 2015 highs in October and is set to climb to historic highs this year on the back of strong drilling activity and profitable shale operations. Geopolitical concerns and the petro-nations’ supply deal cannot undo the post-supercycle oil market order defined by shale’s responsive-ness to prices. We stick to our cautious view and see oil prices at risk, partly due to profit taking, but acknowledge that technical buying could extend the rally further in the very near term."