Peace Talks Won't Save Oil Buyers From $100-Plus Oil
OilPrice.com · Alex Kimani ·
Middle East nations are intensifying diplomatic efforts to ease tensions with Iran, but Standard Chartered expects oil prices to remain elevated until Gulf shipping and production fully recover.
Middle East nations have renewed their diplomatic efforts, with high-level delegations from Saudi Arabia, Turkey and Pakistan having met with Iranian officials in Tehran on Monday to explore a regional security framework in a bid to de-escalate tensions. Whereas Iranian President Pezeshkian has expressed a willingness to resolve regional differences, Tehran continues to insist that U.S. sanctions and the blockade of Iranian ports must be addressed before broader negotiations can get underway. Standard Chartered expects a legitimate agreement to knock some of the geopolitical risk premium off oil quickly, though prices will stay high until shipping lanes are secure and Gulf supply is reliable again. Even as Saudi and Iranian officials were meeting in Tehran, the Houthis claimed fresh attacks on Saudi Arabia’s East-West pipeline pumping stations, although there is not yet verified evidence of new damage to the pipeline, or interruption of flow. Given this backdrop, Stanchart predicts that crude prices will remain elevated over the coming months, with the pace and durability of Gulf supply recovery the principal drivers of market balances. They note that the restoration of some crude exports has eased the immediate shortage, but disrupted production, constrained refining activity and costly shipping alternatives continue to limit effective supply.
Refined products carry the most risk, with diesel shortages and freight costs feeding inflation well beyond the crude market. Diplomacy can shave off the risk premium; a lasting fall in prices needs tankers moving safely through the Gulf and Gulf barrels back on the market. Strategic stock releases and rerouted trade are covering part of the shortfall for now, and neither can replace lost supply indefinitely.
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