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Market Movers Europe


Market Movers Europe, Sep 25-29: Energy implications of heightened tensions in Middle East

With Sam Hashmi, Senior Specialist, Petrochemicals

September 25, 2017 08:27:35 EST (3:05)

In oil markets, the focus is mainly on the Middle East this week, as the US considers tighter sanctions against Iran, and international pressure builds on Iraqi Kurdistan over its plans for an independence referendum.


Voting will also be on the European power market’s radar after Sunday’s national elections in Germany. Any involvement of the Green Party in a governing coalition would put coal plant closures and stricter carbon pricing back on the agenda.


Something beyond politicians’ control is the weather, and power traders are watching nervously for any signs of an early cold snap in France. Also in France, Total has declared force majeure on styrene supplies from its Gonfreville facility because of a strike.


Meanwhile, Mediterranean low-sulfur crude oil grades, such as Azerbaijan's Azeri Light and Kazakhstan's CPC Blend, are facing some stiff competition from America, as higher volumes of US crudes have begun to make their way to Europe.


How concerned should the oil market should be over the Kurdish independence vote? You can reach out to us by tweeting with the hashtag #PlattsMM.

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Video Transcript


In this week’s highlights, we’ll look at the implications of heightened tensions in the Middle East, the German elections, and greater US oil exports to Europe.


In oil markets, the focus is mainly on the Middle East this week, as the US considers tighter sanctions against Iran, and international pressure builds on Iraqi Kurdistan over its plans for an independence referendum on Monday.


The Kurdish vote is straining the province’s ties with the central government in Baghdad and Turkey. Should tensions rise, it is possible oil flows to the Mediterranean might be disrupted.


How concerned should the oil market should be over the Kurdish independence vote? You can reach out to us by tweeting with the hashtag #PlattsMM.


Voting will also be on the European power market’s radar after Sunday’s national elections in Germany. Chancellor Angela Merkel secured a fourth term in office, but a new coalition is needed in Berlin after current coalition partner, the SPD, decided to move into opposition following a bad result.


Merkel’s first three coalitions took an average of 61 days from polling day, so policy uncertainty may continue for some time.


Any involvement of the Green Party in a new government is set to put coal plant closures and stricter carbon pricing back on the agenda. That’s generally seen as bullish for power prices, but could be offset by the return of the business-friendly FDP.


Merkel needs both parties for a majority. Something beyond politicians’ control is the weather, and power traders are watching nervously for any signs of an early cold snap in France.


The cold ramps up electric heat demand in France like nowhere else, and with the spectre of possible nuclear outages also haunting the market, prices have been bullish.


As this chart shows, regulatory checks on nuclear plants have pushed the French November peak contract to a handsome premium over the UK, despite EDF’s best efforts to calm fears of outages this winter.


Also in France, Total has declared force majeure on styrene supplies from its Gonfreville facility because of a strike. While downstream polystyrene markets are set to feel the heat from this, it remains to be seen if other petrochemical products will be affected as it is unclear how long the strike will last.


Further south, Mediterranean low-sulfur crude oil grades, such as Azerbaijan's Azeri Light and Kazakhstan's CPC Blend, are facing some stiff competition from America, as higher volumes of US crudes have begun to make their way to Europe.


Around 9 million barrels of US crude are said to be arriving in Europe in the next two months, due in part to the refinery shutdowns in the hurricane-battered US Gulf region.


Added to this, European benchmark Brent is at an almost 6 dollars a barrel premium to its US equivalent, WTI. This is the highest in over two years and should tempt US sellers to target Europe.


Thanks for investing your time with us, and have a great week ahead.





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