Bousso: The geopolitical premium of oil in the ROI vanished by 2025 and is unlikely to return.
In 2025, the global oil markets were faced with multiple black swans events - such as the Israel-Iran War and Ukrainian attacks on Russian refiners. Yet they were barely affected. In an era when energy is abundant, this calm could be the new norm. The year 2025, by any measure, was chaotic in geopolitics, with President Donald Trump's return to his White House and his flurry of trade, diplomatic and policy initiatives dominating the year. On June 12, Israel attacked military, government, and nuclear sites in Iran. This was a pivotal moment for the?energy?markets. On June 22, the U.S. also joined in with "Operation Midnight Hammer", which targeted Iran's heavily fortified nuclear installations. Oil traders have long feared a U.S. attack on Iran. The Islamic Republic would retaliate if attacked by blocking the Strait of Hormuz in the Gulf, which is a narrow waterway through which nearly one fifth of world oil and gas is shipped. According to theory, the mere threat of a catastrophic event would send oil prices soaring into triple-digit territory. The crude oil volatility index peaked at its highest level since early 2022 when Russian tanks first entered Ukraine. However, oil prices responded to the 12-day Israel-Iran war with a remarkable calmness.
Brent crude futures rose from $69 per barrel on June 12, to $78.85 one week later. They then dropped rapidly to pre-war levels on June 24, after Israel and Iran agreed to a ceasefire mediated by the United States. Prices remained well below the 2025 high.
JADED OIL MARS Oil futures for 2025 oscillated in a narrow range of $60 to $81, based upon their closing daily value. The high was in January, before the Organization of the Petroleum Exporting Countries started production increases.
This is important because the range of prices has narrowed since last year. Prices spiked from $70 to $130 in March 8 two weeks after the invasion. Prices remained?above the pre-invasion level for almost a year. The rally in 2022 was mainly driven by the expectation that Western sanctions against Moscow would severely restrict its oil exports. However, these fears never materialized.
This may explain in part why prices have been less volatile this year. Prices barely responded to Ukraine's attack on Russian oil refineries in April. However, refining margins soared due to fears of diesel shortages. Trump's sanctions against Russia's two largest oil companies, Rosneft, and Lukoil (which together account for 5% global crude production) in October only led to a short-lived and limited price rise.
The reason the energy markets are so calm is simple: there's a lot of oil and natural gas floating around. The U.S. led the ramp-up of supplies in the last decade. It became the world's leading producer and exporter of liquefied gas (LNG) and oil. In September, its crude production reached a record 13,84 million barrels per daily (bpd), thanks to growth in Permian basin and Gulf of Mexico. OPEC+ (OPEC+) and its allies, including Russia?and Kazakhstan have also increased their output through 2025, after reversing production cuts aimed to support prices. Non-OPEC nations in the Americas – Argentina, Canada Brazil and Guyana – have also increased production. This robust growth in production is expected to lead to a massive surplus of almost 4 million barrels per day (bpd) by 2026. The oversupply could even extend into the next year.
The price of shale oil and gas in the United States is still high enough to allow producers, including U.S. shale, to increase or maintain production. OPEC+ also stated that they expect to increase investment in order to increase output capacity over the next few years.
SOMMER BEFORE THE WIND?
But complacency may be at its own risk. Howard Marks of Oaktree Capital Management - the world's biggest distressed debt investor - famously stated that risk is greatest when perceived as lowest.
For energy markets to truly be shaken, there must be a real change in the physical volume. Geopolitical concerns are not enough in an age of abundant supplies.
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(source: Reuters)
