/Posthaste: Brent crude eyes US$80 as oil companies get caught in the U.S.-Iran crossfire

Posthaste: Brent crude eyes US$80 as oil companies get caught in the U.S.-Iran crossfire

Good Morning!

Did you miss us? We are back and not a moment too soon as the world seems to be up to its old tricks again in the new year.

Shortly after fireworks ushered in 2020 around the world, the United States and Iran have traded fireworks of their own to herald a clear and present danger of an escalating conflict between the two nations.

A U.S. deadly strike that killed Iran’s top military leader Qassem Soleimani in response to Iranian aggression against American interests in Iraq has brought a threat that had been lurking in the shadows last year to the fore this year. Brent crude is flirting with US$70 per barrel and safe-haven gold has also spiked this morning, while stocks are reeling amid uncertainty over where the next shot will come from.

“As long as Iran remains subject to severe U.S. sanctions, Iran’s leadership will look to increase the costs for U.S. maximum pressure policy,” wrote Michael Tran, an analyst at RBC Capital Markets. “American oil companies in Iraq could get caught in the crossfire; hence, Iraq ranks near the top of the oil supply disruption risk in 2020 in our view.”

Last summer, a missile landed 100 meters from an ExxonMobil housing facility in Iraq, while Exxon also evacuated around 80 foreign staff from the West Qurna 1 oilfield in another incident. Dozens of U.S. citizens working for foreign oil companies in the southern Iraqi oil city of Basra were preparing to leave the country on Friday, Reuters reported.

Henry Rome, analyst at Eurasia Group, a risk consultancy, expects moderate to low level clashes between Washington and Tehran to last for at least a month and likely be confined to Iraq, while Iran may also look to disrupt shipping routes.

The Iranian actions will, however, stop short of what would be considered war, Rome said in a note to clients, noting that a limited conflict has a 70 per cent probability and a major conflict a 30 per cent probability.”

“Prices will likely hold around US$70/barrel but could make a run at US$80 if the conflict spreads to the oil fields of southern Iraq or if Iranian harassment of commercial shipping intensifies,” Rome said.

The geopolitical pressure will add to a brewing rally in oil.

“Global oil demand is likely to match levels of years past, but slowing supply growth from the U.S., and legacy non-OPEC growth running dry come 2H’20 has improved sentiment,” Tran wrote.

Here’s what you need to know this morning:



  • Bank of Canada senior deputy governor Carolyn Wilkins to participate in a panel discussion hosted by the Federal Reserve Bank of Chicago at the American Economic Association’s 2020 annual meeting of allied social science associations in San DiegoU.S. Federal Open Market Committee minutes at 2 p.m. ET

Gold had a breakout moment in 2019, and that will likely continue into the New Year, according to analysts.

RBC Capital Markets LLC thinks gold could scale US$1,700 per ounce, from its current level of around $1,527, as sentiment around the yellow metal changed dramatically during the course of 2019.

“In terms of the macro backdrop, from the perspective of rates alone, gold actually looks more than fairly valued at current levels,” wrote Christopher Louney, commodity strategist at RBC in a note to clients. “Likewise, while the dollar and equities remain relevant for gold prices, it is risk and uncertainty that we think will determine gold’s ability to post gains in the coming years. And given the political and geopolitical events on the calendar, we are certainly positive on gold’s price performance.”

— Please send your news, comments and stories to [email protected]. — Pamela Heaven @pamheaven

With files from The Canadian Press, Thomson Reuters and Bloomberg


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