Oil comes o the boil

Cooling tensions in the Middle East saw Brent crude ease back below $90 a barrel this week. Still, oil has climbed 16% this year. Traders have returned to focusing on fundamentals, says Erwin Seba for Reuters. “Geopolitical risk premiums” – the extra price added to oil in case it becomes scarce in a conflict – “tend not to last if supply is not actually disrupted”, says Giovanni Staunovo of UBS.

Geopolitical risk has hardly evaporated, says Liam Halligan in The Telegraph. The US is reimposing sanctions on oil producer Venezuela and new sanctions against Iran are also coming. It’s true that a war that saw Iran close the narrow Strait of Hormuz in the Persian Gulf to shipping would send crude prices soaring, but the danger is overrated. China, Iran’s main trading partner, now imports more oil via the Strait than the US and EU combined. Beijing won’t let Tehran close the world’s energy tap.

Energy traders seem to have got the memo, says Robert Buckland in the Financial Times. During the 1990 Gulf War, oil prices doubled and the S&P plunged by 20%. Despite elevated tensions, trading this year has been placid. Thank US (and Canadian) shale, which has turned America into a net energy exporter. When global turmoil cuts supply, US shale soon fills the gap, capping price rises. War and conflict are very important for other reasons, but just because something matters doesn’t mean that it will move markets.