Oil retreats from 9-month high

Oil skids 1.5% as investors recalibrate risk of Mideast disruption


Oil prices slid on Tuesday as investors reconsidered the likelihood of Middle East supply disruptions in the wake of the United States killing a top Iranian military commander. Brent crude fell as much as 1.5 per cent to US$67.86 a barrel and was at US$68.14, down 77 cents, at 0550 GMT. US West Texas Intermediate (WTI) crude futures were at US$62.62, down 65 cents, after earlier dropping 1.5 per cent to an intra-day low of US$62.30.Prices surged during the previous two sessions, with Brent reaching its highest since September while WTI rose to the most since April. The gains followed fears of escalating conflict and potential Middle East supply disruptions after the Jan. 3 drone strike in Baghdad that killed Iran’s Qassem Soleimani. But, some analysts have tempered expectations for a widespread conflict.
“The market’s clearly worried about the potential for supply disruption but there’s no obvious path forward from here,” said Lachlan Shaw, head of commodity research at National Australia Bank. “It’s all a matter of scenarios that may impact oil production or not, so the market seems to have recalibrated in the last 24 to 36 hours on some of those likelihoods.”
He added that Iran will need foreign currency earnings from continued oil exports and it will be counter to their interest if they try to block the Straits of Hormuz. Roughly 20 per cent of the world’s oil passes the Middle East waterway, which borders Iran. Consultancy Eurasia Group said Iran is likely to focus more narrowly on US military targets instead of energy targets.
“That’s not to say it won’t continue low-level harassment of commercial shipping or regional energy infrastructure but these activities will not be severe,” it added. Prices were also supported by higher compliance among the Organization of the Petroleum Exporting Countries (Opec) on meeting production quota curbs aimed at reducing supply.
Opec members pumped 29.50 million barrels per day (bpd) last month, down 50,000 bpd from November’s revised figure, according to a Reuters survey. US crude oil stockpiles likely dropped last week for a fourth week in a row as exports ramped up, a Reuters poll showed on Monday.
Six analysts estimated, on average, that crude stocks fell by 4.1 million barrels in the week to Jan 3. Inventories for refined products were expected to rise with gasoline stocks set to gain for the ninth straight week, according to the poll.
Even before Soleimani’s death, investors were increasing their bullish WTI holdings, with money managers raising their net-long positions in the week to Dec 31, the Commodity Futures Trading Commission said on Monday. Crude oil prices were down from their nearly nine-month high levels to begin Tuesday on a lower note as global markets closely watch escalating tensions in the Middle East. The international benchmark Brent crude was trading at $68.17 per barrel at 0620 GMT on Tuesday for a 0.58% decline after closing Monday at $68.57 a barrel with a 1.45% daily loss.
American benchmark West Texas Intermediate (WTI) was at $62.66 a barrel at the same time for a 0.49% loss after ending the previous session at $62.97 per barrel with a daily 1.39% fall. Last Tuesday, Brent crude climbed to as much as $70.75 per barrel to mark its highest level since May 23, while WTI rose to $64.72 a barrel — its highest level since April 9. Crude oil prices rose to their nearly nine-month highest level with rising tensions between the U.S. and Iran, which continues to threaten secure crude supply from the oil-rich region. The Middle East is home to almost half of the world’s proved oil reserves and accounts for one-third of global oil production.

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