Risk level: Orange - High 

RED: Severe (+/- 4%) ORANGE: High (+/- 2%)  YELLOW: Elevated (+/- 1%)  BLUE: Guarded (+/- ½%)

We see a mid-term risk premium for crude oil prices supporting a band above the $70 per barrel mark for Brent crude oil.

Risk has been building for oil prices beyond what fundamentals would normally support, though indications last week did suggest the market is close to balance. Trade tensions between the two leading economies – China and the United States – could be negative for crude, though war drums in Syria are the clear driving factor.  

Addressing the 15-member U.N. Security Council on Friday, U.N. Secretary-General Antonio Guterres called for responsible strategies when considering action in Syria.

"Increasing tensions and the inability to reach a compromise in the establishment of an accountability mechanism threaten to lead to a full-blown military escalation," he said.

After Western-backed weekend strikes on targets in Syria, including in Damascus, the secretary-general urged restraint.

Gulfsands Petroleum was one of the remaining hold outs for formal energy work in Syria, though it declared force majeure more than six years ago. Conflict, however, could bring some of the world's leading oil producers into the fight. 

U.S. President Donald Trump turned his ire toward Russia when mulling missile strikes on Syria, leaving two of the world's leading oil producers bickering over turf in the Middle East. While neighboring Iraq is among the least compliant with OPEC's balancing effort, regional instability could rekindle the same Islamic State activity that threatened the northern oil fields before liberation last year. Iran, meanwhile, would certainly react to any escalation, though it too is bogged down by risk over its proxy war in Yemen with archrival Saudi Arabia. More than one analyst has said that nothing spells risk like a conflict involving the world's leading oil producers.

On the economic front, and outside of the supply-side risks, the Federal Reserve Bank of Boston said it was optimistic about the pace of the U.S. economy, but was worried about what's over the horizon. The potential for a U.S-Chinese trade war could carry a multibillion dollar price tag, cause disruptions to supply of goods for domestic manufacturers and lead to higher prices for consumer goods. That comes as wage growth in the U.S. economy has been increasing only on modest levels. On jobs, Boston Fed Chief Eric Rosengren said the unemployment rate is below what's considered "the natural state."

"Periods in which unemployment dipped significantly and persistently below the estimated natural rate historically have tended to generate conditions that resulted in a recession," he said.

On Friday, the International Energy Agency said it was leaving its global oil demand forecast in place at 1.5 million barrels per day, though lingering cold in parts of the United States spurred demand in the first quarter. Some of that, however, was offset by weaker Chinese data. On the supply side, the IEA said March levels dipped by 120,000 bpd as OPEC partners closed their spigots tighter. For global stocks - - the key metric on balance -- the IEA said levels could reach the five-year average by May, just in time for President Trump to consider sanctions waivers for Iran.

A balanced market has little room for geopolitical risk and for this reason, we give the market a code orange, expecting several sessions with risk premium near 2 percent for Brent.