WTI: How is diplomacy reducing the risk premium? – TD Securities

WTI Crude and refined products have shed some of their geopolitical risk premium following headlines suggesting President Trump is allowing more time for diplomacy, according to TD Securities strategists Ryan McKay and Bart Melek. They caution, however, that diplomatic headlines alone are unlikely to remove the premium entirely while the war lacks a concrete resolution and tanker and Houthi attacks continue.

Can diplomacy headlines fully remove the geopolitical risk premium?

"Headlines and hopes of diplomacy have eroded some risk premium in crude oil markets, but we argue headlines alone are unlikely to shed the whole risk premium."

"Headlines that President Trump is willing to give diplomacy more time, signaling attacks may not be imminent immediately before/after the midterms, have seen a portion of the geopolitical risk premium priced out of crude oil and petroleum products."

"With flows elevated, and a large portion of recent upside attributed to a risk premium, these headlines will have an increasingly large impact on the market."

"With that said, so long as there is no concrete conclusion to the war, and tanker and Houthi attacks remain prevalent, we do not anticipate a complete erosion of the risk premium via diplomacy headlines alone."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)