Tanker, insurance rates unmoved by Israel-Iran conflict

NEW DELHI: Tanker and insurance rates have remained unmoved as oil continues to flow amid simmering geopolitical tension between Israel and Iran as fear of a wider conflagration engulfing West Asia recede, sources privy to discussions during a review meeting of oil company executives on Friday said.
The sources said inputs from shipping companies, insurers and traders indicated the market is taking a breather after dealing down concerns over the conflict and focusing on fundamentals, especially economic data and interest rate cut signal from the US.
Oil prices appeared to bear this out on Wednesday. Benchmark Brent crude steadied at $88 per barrel, losing the upward momentum of the previous session on the back of a surprise fall in US crude stockpile, indicating higher-than-expected demand, and a weakened dollar.
“Risk premia feeds on headlines. Since the headlines (on Israel-Iran conflict) have become more tepid and there is no report of disruption in oil supply, the fear factor behind risk premia has also lost its effect,” a top executive of a refining company said, requesting anonymity.
Perceived de-escalation between Iran and Israel could remove another $5-10 a barrel of "the still elevated geopolitical risk premium" in coming months, Reuters reported quoting a Goldman Sachs analyst note, putting a $90 per barrel ceiling on Brent.
Last Friday, reports by Goldman Sachs, Citi Research and Jeffries week discounted for now the possibility of a wider conflict but projected elevated Brent in the $85-$95 range.
This is a mixed bag for India, which depends on imports for 83% of oil and 50% of gas. An open supply line is a relief. But the high import dependence also leaves the country vulnerable elevated prices and/or market volatility.
High oil prices jack up the country’s import bill, which impacts the current account deficit and weakens the rupee, squeezing government headroom for social sector spending. Elevated oil also raises costs for people and industry as well as narrows scope for interest rate reduction to make EMI’s cheaper.