Oil: Event risk on the increase with focus on Iran – Danske Bank

Oil prices rallying to the highest level since 2014 is due partly to rising event risk in the oil market, according to analysts at Danske Bank.

Key Quotes

“We highlight the tense geopolitical situation in the Middle East and the deteriorating economic situation in Venezuela as two hotspots for a sudden oil supply disruption, which could send the oil price higher and affect FX markets. Focus is now on Iran, as the waiver on US sanctions related to the 2015 nuclear deal expires on 12 May. US President Donald Trump has argued against a continuation of the current nuclear deal and we see a tail risk where sanctions related to Iran's oil exports are reinstated and the price of Brent jumps to USD80-85/bl. If the deal continuesd, oil prices could fall to around USD72-73/bl from the current level.”

“There is upside risk to EUR/TRY, EUR/JPY, EUR/CHF and EUR/INR from the extreme case scenario outlined above and downside risk to EUR/CAD, EUR/NOK and EUR/RUB. Notably, EUR/USD maintains a minuscule sensitivity to oil, which means that an oil spike should not be able to derail the current negative momentum in the cross.”