Algerian unrest points to high risk premium on oil, says Junior Oils Trust’s Angelos Damaskos

Angelos Damaskos, CEO of Sector Investment Managers and investment adviser to the Junior Oils Trust, says that recent events in Algeria underline the geopolitical problems facing North Africa and the Middle East, which point to a sustained high risk premium on oil.

The Algerian unrest is further testament to our view that the geopolitical problems in North Africa and the Middle-East are unlikely to be resolved in the near-term.

These regions seem to have fundamental issues in their transition from authoritarianism to democratic government systems and people are prepared to fight bloody battles to achieve progress. The situation is exacerbated by deep-rooted vested interests that control much of the wealth and economic sources in the region.

In addition to a drop in production from the affected countries, Saudi-Arabia is much concerned about its domestic political structure and spends increasing amounts to maintain stability.

The result is that the Saudis need the Brent oil price to stay well above $100/barrel and that continued militancy and bloody clashes add a significant risk-premium on oil. We believe that the Brent oil price will remain in the $110-125/barrel range in 2013 with a possibility of a sharp spike up should there be military conflict between Israel and Iran.

 

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