Oil: Geopolitical risks back to the fore

US-IRAN war rhetoric has intensified as US air strikes killed an Iranian general in Baghdad last Friday. Retaliation by Iran could be on the cards, and lead to further violence in the Middle East region.

Oil prices are likely to remain elevated in the short term, but should normalise eventually as fundamentals catch up. In our view, possibility of outright war is low; there are possible trading opportunities in upstream oil stocks.

Oil breached US$70/bbl levels briefly as Middle East tensions intensified. Brent crude oil prices are currently trading at just around US$70/bbl, up from US$65/bbl level last month. The geopolitical risk premium is now firmly in the price.