Key insights
- The signing of the Iran deal and the opening of the Strait of Hormuz removes geopolitical risk premiums from the oil market. Anticipated significant investment in Iran's oil sector and the UAE's departure from OPEC+ signal potential for increased global oil supply. This could pressure oil prices downwards, potentially towards sub-$40 levels, despite possible support from strategic reserve refilling. The bullish case for oil appears weak in the medium to long term due to these supply-side factors.
Now that the Iran deal is completely signed and the Strait of Hormuz is fully open, the only thing remaining is for the ink to dry. How should oil traders position themselves?
Are we heading toward sub-$40 oil again? An oil price collapse isn't necessarily good either, although governments refilling their strategic petroleum reserves could provide some support.
On top of that, Iran is expected to receive roughly $325 billion in investment, which could eventually lead to a significant increase in oil and gas supply. Meanwhile, the UAE has left OPEC+, allowing it to ramp up production as aggressively as it wants.
With geopolitical risk premiums disappearing, additional Iranian supply potentially coming to market, and the UAE increasing production, what is the bullish case for oil over the next few years?