The biggest ongoing risk premium continues to come from the Iranian nuclear weapons development questions and how Israel will respond. “It’s very difficult to ascertain what [Iranian President Mahmoud] Ahmadinejad is going to do,” Cooper says. “He’s actually calmed down his rhetoric significantly in the last few weeks.”
The risk, he adds, is whether or not Israel will mount an air strike against Iran. “That definitely would provoke and spin off a very significant price spike,” Cooper says, adding that such a spike would likely not last long. “While Iran might be able to shut [the Hormuz Strait] down for a day or [two], I don’t think they have the capability to shut it down for weeks or months. The U.S. Navy would put an air blanket over the coast of Iran and around the Straits of Hormuz so tight that a mosquito couldn’t take off.”
Estimates of how much premium in oil prices comes from Iran vary widely, with Patton placing it currently at $5 to $6 per barrel while Meir places it at $15 to $20.
Meir notes that Israeli Prime Minister Benjamin Netanyahu said in the fall that no action would be taken by Israel against Iran before the spring.
Large increases in U.S. oil production also may be a major factor in the muted response of oil prices to political tensions in the Middle East and Africa while the risk premiums seen for Brent crude prices vs. WTI appear to be offsetting the negative effects of slower European demand growth, Zarembski says. “Brent truly is reflecting global influences on oil prices and the U.S. WTI benchmark is now relegated only to reflecting the current domestic supply and demand factors of the U.S.”