Enverus Intelligence Research (EIR) has introduced a new geopolitical risk measure which it says is designed to gauge oil market sentiment and understand price beyond fundamental forecasts.
According to the EIR, the company can now project not just global oil supply, demand and stocks, but also explain the spread in forecast oil prices from its fundamental outlook based on a sentiment score generated by a proprietary algorithm fed by open-source keywords.
The company says the new index enables it to estimate geopolitical premium or discount in oil prices and adds that it can be useful for market participants such as oil option traders, oil price hedgers and geopolitical observers.
“By quantifying the geopolitical premium, we estimate how much of a risk differential is warranted versus the fundamental price forecast,” Bill Farren-Price, the director of EIR, said in a statement sent to Rigzone.
“The current geopolitical premium has eroded materially as Brent appears to have settled around the $100 per barrel mark – a value that we feel is fundamentally justified. The geopolitical premium reached its peak when Russia invaded Ukraine and Brent touched $139 per barrel,” Farren-Price added in the statement.
Looking back through history, the Arab Spring tensions resulted in a $10-$15 per barrel price premium in 2012-2013, drone attacks at Saudi’s Abqaiq-Khurais facility led to a premium of about $10 per barrel in 2019, and an anticipated demand rebound from Covid-19 equated to nearly $20 per barrel, the EIR highlighted.
The price of Brent crude oil has seen swings over the last few weeks. The commodity closed at $100.85 per barrel on March 1, $127.98 per barrel on March 8, $98.02 per barrel on March 16, $121.6 per barrel on March 23, $98.48 per barrel on April 11, $113.16 per barrel on April 18, and $104.97 per barrel on May 3. At the time of writing, Brent was trading at $108.78 per barrel.
Oil soared past $100 per barrel for the first time in years back in February as Russian forces escalated a conflict with Ukraine.
Source: Rigzone.com