"For the time being, the fear premium
from the rash of onshore and offshore attacks is being kept check by bearishness over the global economy and oil demand growth, which seems to have a firm grip over the oil market."
A FEAR premium
has been built into crude prices but are they going to last, and for long remains a big 'if'.
GME tensions have risen significantly in the past few weeks; these add to the "fear premium
" in crude oil prices.
But there appears to be no "fear premium
" on oil prices; on the contrary, oil prices have declined sharply since 2014.
Risk reversions in the euro-dollar forex option market tell me Planet Forex is unwinding the excessive fear premium
embedded in upside US dollar protection strategies.
"That's higher than what we envisioned earlier this year," he says, "but it factors in the fear premium
that is now reflected in crude oil prices."
Impact on global oil prices post Iran nuclear deal is positive, the fear premium
is dwindling markets are softening yet issues continue to confound.
The fear premium
in oil markets may significantly rise and increase oil prices by 20%, leading to negative growth effects in the US, Europe, Japan, China, India and all other advanced economies and emerging markets that are net oil importers.
It may fall to as low as 2 mbpd by 2012, likely forcing traders to factor a greater "fear premium
" into prices.
Analysts said a fear premium
was in place due to ongoing tensions in oil-producing regions of North Africa and the Middle East and the recent death of Al-Qaeda leader Osama bin Laden.
Some economists argue that a fear premium
may be factored in the oil price for some time.
'All signs point to there being a one-for-one substitution so far in terms of barrels, but even so, that doesn't take into account the market impact from a reduction in the quality of those substituted barrels, as well as a fear premium