Oil hits $70: Middle East tensions lift oil 2% up

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NEW YORK/LONDON/DUBAI

Oil prices hit as high as $70 on Monday with markets watching closely on any potential fallout that could disrupt oil supplies as a result of escalating US-Iran tensions. Prices did recede as the day went on with Brent crude trading at $69.45 and West Texas Intermediate (WTI) on $63.70 by 5pm UAE local time; both still over 1 per cent higher than their closing on Friday.

“It’s a bit of a shocking start to the year and a lot of expectations are being squashed straight away; crude oil obviously has responded very strongly to this killing [of Soleimani] in Baghdad,” said Ole Hanson, head of commodity strategy at Saxo Bank. “What the markets are obviously now worried about is the counter response from Iran and the US [in return], obviously the rhetoric over the weekend has been pretty tough on both sides,” he added.

“This market needs to see an actual disruption to supply otherwise we could see quite a substantial sell off because there’s been a lot of new longs coming into the market. “The biggest risk lies in will Iran start to hurt transportation through the Strait of Hormuz when they still need to sell their own oil, so that’s probably doubtful… So we’ll just basically have to see how things play out,” he said.

Hanson said that short of geopolitical tensions spilling over, that the fundamentals of the oil market remained unchanged from 2019 in terms of demand and supply. “We have to just also take stock and see where do we come from – we come from a situation of a market that is relatively oversupplied, Opec cut production in early December [last year] and the market rallied throughout December.

“Now we see it spike even higher, but we still haven’t [seen] in Brent crude the spike high that we saw after the Aramco attack back in September,” he added. “The only thing we can rest assured is that volatility is going to stay elevated for the time being.”

Crude oil prices were up around 2% at trading start on Monday with escalated tensions in the Middle East risking secure crude oil supply from the region.  International benchmark Brent crude was trading at $70.17 per barrel at 0630 GMT for a 2.3% jump after it closed Friday at $68.60 a barrel with a 3.55% increase in intraday trading.

American benchmark West Texas Intermediate was trading at $64.31 a barrel for a 2% gain at the same time after ending Friday at $63.05 per barrel with a 3.06% intraday trading rise.

“… Should Iran strike any U.S. person or target, the United States will quickly & fully strike back, & perhaps in a disproportionate manner,” U.S. President Donald Trump wrote on Twitter late Sunday.

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