The Bullish Case for Oil

The rapidly heating up situation in Syria has pushed Brent crude prices to US$72 a barrel. something that Goldman Sachs had predicted on Thursday. The investment bank’s stance on commodities in general is very upbeat because of the Middle East situation as well as the latest round of U.S. sanctions against Russia.

“With low cross-asset correlations. increasing inflationary risks. a positive carry and the potential for oil supply disruptions in the Middle East. the strategic case for owning commodities has rarely been stronger.“ Goldman analysts said. reiterating their “overweight“ stance on commodities.

It seems the latest developments in Syria are such a strong tailwind for oil prices that even the re-imposition of U.S. sanctions against Iran is unlikely to have a major impact on oil markets immediately. However. if Iranian production does decline following the reintroduction of sanctions. this could push oil prices up by another US$7 a barrel.

U.S. President Donald Trump has given a deadline to the European signatories of the nuclear deal that resulted in the lifting of economic sanctions against Tehran two years ago. to “fix the terrible flaws“ in the deal.

Syria is not the only hot spot that is driving oil prices higher up. but it is certainly the hottest. A year ago. the U.S. carried out missile strikes against Syrian army targets in response to allegations of a chemical attack. Now the saber rattling has begun again following reports of another chemical attack. However. while Russia last year refrained from retaliating to U.S. strikes. this time it has made clear it will not sit idly by.

Some geopolitical experts believe that a wider war will be avoided as neither of the sides wants it. but the situation is certainly tense. Events in Yemen. where the Houthi rebels are reportedly firing missiles to Saudi Arabia. are only adding to these geopolitical tensions.




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