Enverus Intelligence Research, a subsidiary of Enverus, the leading global energy data analytics and SaaS technology company, has introduced a new geopolitical risk index built to gauge market sentiment and better understand oil price movements beyond fundamental price forecasting.
“By quantifying the geopolitical premium, we estimate how much of a risk differential is warranted versus the fundamental price forecast,” said Bill Farren-Price, Lead Report Author and Director of Enverus Intelligence Research. “The current geopolitical premium has eroded materially as Brent appears to have settled around the US$100/bbl mark – a value that we feel is fundamentally justified. The geopolitical premium reached its peak when Russia invaded Ukraine and Brent touched US$139/bbl.”
Key takeaways from the report:
- EIR can now project not just global oil supply, demand and stocks, but also explain the spread in forecast oil prices from their fundamental outlook based on a sentiment score generated by a proprietary algorithm fed by open-source keywords.
- The new index enables EIR to estimate geopolitical premium or discount in oil prices. The index our geopolitical index can be useful for market participants such as oil option traders, oil price hedgers and geopolitical observers.
- Looking back through history, we can see those events, such as the Arab Spring tensions, resulted in US$10 - 15/bbl price premium in 2012 - 2013, drone attacks at Saudi’s Abqaiq-Khurais facility led to a premium of about US$10/bbl in 2019, and an anticipated demand rebound from COVID-19 equated to nearly US$20/bbl.