Oil prices have taken a dip recently, hovering around their lowest points in about two months. This change is attributed to the disappearance of what's called the 'geopolitical risk premium', according to Eric Nuttall, a partner at Ninepoint Partners and a keen observer of the energy sector in Canada.
Geopolitical risk premium is essentially an extra amount tagged onto the price of oil due to uncertainties in various parts of the world, particularly regions like Eastern Europe and the Middle East. Nuttall sees this disappearance as a positive development for investors interested in energy.
Removing this premium means less anxiety for investors. When prices are inflated due to geopolitical tensions, any sudden positive development can cause prices to plummet, causing investors to worry about their investments. With this risk premium gone, the market is now more stable and less prone to drastic fluctuations due to political events.
Despite ongoing tensions in key regions, Nuttall notes that the energy markets seem less worried about major disruptions to the global oil supply. He predicts that as we head into the summer months, demand for oil will increase, which could potentially drive prices up.
Looking ahead, there's anticipation surrounding the next meeting of OPEC+, an alliance of oil-producing countries. Russia’s Deputy Prime Minister Alexander Novak mentioned the possibility of increasing oil output, but Nuttall suggests that OPEC+ is still weighing its options and won't make any firm decisions until the meeting.
In Nuttall's view, it's likely that OPEC+ will continue to be cautious, holding back a significant amount of oil from the market until demand picks up naturally. This strategy, he explains, avoids flooding the market with excess oil, which could drive prices down.
Overall, Nuttall remains optimistic about the future of oil prices, foreseeing a bullish outlook in the next few years as demand increases and supply remains managed.
