Oil prices rise ahead of trade deal, likely stock draw

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Reuters
KEY POINTS
  • Brent crude was up 16 cents, or 0.3%, at $64.36 per barrel by 0301 GMT after falling 1% on Monday. U.S. West Texas Intermediate crude futures were up 13 cents, or 0.2%, at $58.21 a barrel.
  • However, price gains were capped by receding Middle East tensions, with both Tehran and Washington desisting from any further escalation after this month’s clashes.
  • Elsewhere, Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said his country will work for oil market stability at a time of heightened U.S.-Iranian tension and wants to see sustainable prices and demand growth.
GP: Aramco oil facility Saudi Arabia 190719
Aramco oil facility near al-Khurj area, just south of the Saudi capital Riyadh on Sept. 15, 2019.
Fayez Nureldine | AFP | Getty Images

Oil prices edged higher on Tuesday as investors focused on the signing of a preliminary trade deal between the United States and China, the world’s top oil consumers, and on expectations of a drawdown in U.S. crude oil inventories.

However, price gains were capped by receding Middle East tensions, with both Tehran and Washington desisting from any further escalation after this month’s clashes.

Brent crude was up 16 cents, or 0.3%, at $64.36 per barrel by 0301 GMT after falling 1% on Monday. U.S. West Texas Intermediate crude futures were up 13 cents, or 0.2%, at $58.21 a barrel.

“Oil prices are modestly rebounding, following four days of intense selling,” said Edward Moya, analyst at brokerage OANDA, pointing to trade-deal optimism and fading concerns over the U.S.-Iran conflict.

“Oil prices are tentatively rebounding after seller exhaustion kicked in as investors await the next developments on the trade front and as earnings season begins.”

Oil prices were supported ahead of the signing at the White House on Wednesday of a Phase 1 trade deal, which marks a major step in ending a dispute that has cut global growth and dented demand for oil.

Still, with traders already pricing in the signing of the deal, there is more downside risk to prices, said Michael McCarthy, chief market strategist at CMC Markets.

“Regardless whether the deal is signed, we might have a buy the rumours, sell the fact scenario unfolding,” he added.

Separately, U.S. crude oil inventories were expected to have fallen last week, a preliminary Reuters poll showed on Monday, helping to boost prices.

The poll was conducted ahead of reports from the American Petroleum Institute (API), an industry group, and the Energy Information Administration (EIA), an agency of the U.S. Department of Energy.

China’s crude oil imports in 2019 grew by nearly 10 percent from the previous year on demand growth from new mega-refineries, customs data showed.

Elsewhere, Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said his country will work for oil market stability at a time of heightened U.S.-Iranian tension and wants to see sustainable prices and demand growth.

Oil prices surged to their highest in almost four months after a U.S. drone strike killed an Iranian commander on Jan. 3 and Iran retaliated with missiles launched against U.S. bases in Iraq. But they slumped again as Washington and Tehran retreated from the brink of direct conflict last week.

Prince Abdulaziz said it was too early to talk about whether the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, would continue with production curbs set to expire in March.

Oil steady on easing US-Iran tensions, eyes on China trade deal

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Reuters
KEY POINTS
  • Brent crude was down 2 cents at $64.96 per barrel at 0438 GMT, while West Texas Intermediate (WTI) was up 3 cents at $59.07 a barrel from the previous session.
  • Oil prices had surged after the killing of an Iranian commander by a U.S. drone strike and the launch of Iranian missiles in retaliation, but then slumped as the United States and Iran stepped back from the brink of direct conflict.
  • Meanwhile, expectations of thawing trade tensions between the United States and China, the world’s two biggest oil consumers, have offered support for prices.
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A damaged installation in Saudi Arabia’s Abqaiq oil processing plant is pictured on September 20, 2019.
Fayez Nureldine | AFP | Getty Images

Oil prices held steady on Monday as fears of conflict between the United States and Iran eased, with investors shifting their focus to this week’s scheduled signing of an initial U.S.-China trade deal, which could boost economic growth and demand.

Brent crude was down 2 cents at $64.96 per barrel at 0438 GMT, while West Texas Intermediate (WTI) was up 3 cents at $59.07 a barrel from the previous session.

Oil prices surged to their highest in almost four months after a U.S. drone strike killed an Iranian commander and Iran retaliated with missiles launched against U.S. bases in Iraq, but slumped again as Washington and Tehran retreated from the brink of direct conflict.

Global benchmark Brent touched $71.75 per barrel last week before ending on Friday below $65.

“The possibility of the war between the United States and Iran has disappeared … For the week, the signing of the U.S.-China trade deal would lift oil prices on expectations for higher demand,” said Kim Kwang-rae, a commodities analyst at Samsung Futures in Seoul.

Backwardation in Brent, a market structure where prices for near-term contracts are higher than those for later contracts, is currently at 72 cents per barrel, from 84 cent a week earlier, whereas the WTI backwardation is at 4 cents a barrel from 23 cents last week.

Backwardation tends to reflect tightening supplies, and the narrowing of the values indicate that worries over supply disruption are receding.

“The fundamentals for WTI remain weak for the coming months and stocks are expected to build at Cushing,” said Virendra Chauhan, an oil analyst at Energy Aspects in Singapore.

“For Brent, which is a broader indicator of the global crude market, it is a combination of supply and demand,” he added.

“Sentiment appears to have turned a corner on the trade-war front, while some green shoots regarding industrial activity and the start of fiscal stimulus, could mean demand surprised to the upside.”

A U.S.-China trade deal is due to be signed in Washington on Wednesday.

Oil prices fall further as threat of Middle East war recedes

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Reuters
KEY POINTS
  • Brent crude fell 20 cents, or 0.3%, at $65.17 by 0240 GMT, and is heading for its first decline in six weeks, down 5%.
  • WTI was down 20 cents, or 0.3%, at $59.36 and also on track for a first weekly drop in six, nearly 6% from last Friday’s close based on the latest prices.
  • Oil is now below where it was before a U.S. drone strike killed a top Iranian general on Jan. 3.
Syria Oil Field 191027 EC
Oil pump jacks pump oil in Al-Jbessa oil field in Al-Shaddadeh town of Al-Hasakah governorate April 2, 2010.
Stringer | Reuters

Oil prices dropped on Friday extending days of losses as the threat of war in the Middle East receded and investors  switched attention to economic growth prospects and the rise in U.S. crude oil and product inventories.

Brent crude fell 20 cents, or 0.3%, at $65.17 by 0240 GMT, and is heading for its first decline in six weeks, down 5%. WTI was down 20 cents, or 0.3%, at $59.36 and also on track for a first weekly drop in six, nearly 6% from last Friday’s close based on the latest prices.

Oil is now below where it was before a U.S. drone strike killed a top Iranian general on Jan. 3, with Iran responding with a ballistic missile attack on Iraqi air bases hosting U.S. forces this week that left no casualties.

“Although markets are rightly pricing in a lower risk of … supply-side disruptions in the Middle East, we still think there remains some ongoing risk to output from geopolitical issues in the region,” J.P.Morgan said in a commodities note.

A Ukrainian airliner that crashed in Iran in the early hours of Wednesday after Iran launched the attacks on the bases in Iraq, was likely brought down by an Iranian missile, Canada’s Prime Minister Justin Trudeau said on Thursday.

All the nearly 180 passengers on board the Ukraine International Airlines flight to Kiev from Tehran died in the crash. Iran denied it was hit by a missile.

For now though oil investors are focusing on areas away from the conflict.

Crude stocks in the world’s biggest producer rose against forecast last week and gasoline inventories were up by the most in a week in four years, the U.S. Energy Information Administration said on Wednesday.

“There’s too much supply out there,” a Japan-based based oil executive told Reuters.

Oil prices surge 4% at high following attacks on Iraq bases

KEY POINTS
  • Oil prices surged more than 4% at their high after Pentagon officials said that Iran launched more than a dozen ballistic missiles against multiple bases in Iraq housing U.S. troops.
  • U.S. West Texas Intermediate crude futures hit $65.65, its highest level since April, while international benchmark Brent crude reached $71.75 per barrel, its highest level since September.
  • “I think traders fully anticipated a retaliation, but not on U.S. troops, which leads traders to fear the next move by the U.S. might be a strike back within Iran, which could open a whole other can of worms,” Tudor, Pickering, Holt & Co. managing director Michael Bradley said.

Oil prices surged more than 4% at their high in early trading on Tuesday night after Pentagon officials said that Iran launched more than a dozen ballistic missiles against multiple bases in Iraq housing U.S. troops.

U.S. West Texas Intermediate crude futures spiked 4.5%, or $2.85, to a session high of $65.65, its highest level since April, before pulling back to $64.11. International benchmark Brent crude rose more than 4% to a session high of $71.75 per barrel, its highest since September, before pulling back to $69.86.

“I think traders fully anticipated a retaliation, but not on U.S. troops, which leads traders to fear the next move by the U.S. might be a strike back within Iran, which could open a whole other can of worms,” Tudor, Pickering, Holt & Co. managing director Michael Bradley said. “Where markets go within the next 48 hours will now depend on the U.S. response,” he added.

U.S. stock futures plunged on Tuesday night, with the Dow Jones Industrial Average futures dropping more than 400 points at the low, indicating a loss greater than 300 points at Wednesday’s open. S&P 500 and Nasdaq 100 futures pointed to losses of at least 1%.

“At approximately 5:30 p.m. (EST) on January 7, Iran launched more than a dozen ballistic missiles against U.S. military and coalition forces in Iraq. It is clear that these missiles were launched from Iran and targeted at least two Iraqi military bases hosting U.S. military and coalition personnel at Al-Assad and Irbil. We are working on initial battle damage assessments,” Assistant to the Secretary of Defense for Public Affairs Jonathan Hoffman said in a statement. “We are working on initial battle damage assessments.”

“The idea that Iran might wait or even not retaliate has been disabused,” Again Capital’s John Kilduff said Tuesday. “Oil now must wait out any reports of American casualties, which should then invite a fulsome U.S. response.”

He added that WTI could “easily be above $70” by morning.

Following reports of the attacks, White House press Secretary Stephanie Grisham said President Donald Trump “has been briefed and is monitoring the situation closely and consulting with his national security team.”

Tuesday’s attack comes as tensions between the United States and Iran have been building, following Thursday’s airstrike that killed Iran’s top commander Qasem Soleimani.

On Friday oil prices surged more than 3% as the Street digested possible forms of Iranian retaliation, which some said could include targeting oil production facilities in Iraq or Saudi Arabia. But by Monday fears appeared to have subsided, and oil settled little changed after initially rising more than 2%. On Tuesday, prices slid about 1%.

“My initial thought is this that the 3% move brings Brent slightly above where it traded following the air strike on Gen. Soleimani, which was faded over the past two days. The price action is reflective of ongoing geopolitical uncertainty, but not panic,” Rebecca Babin, senior energy trader at CIBC Private Wealth Management said. “The crude market response tells me the market is comfortable with current spare capacity. If Iraq’s production comes into play as this progresses it will be a very different reaction.”

Oil tumbles as investors rethink Mideast disruption risk

Reuters

SINGAPORE (Reuters) – Oil prices on Tuesday surrendered some gains made over the previous two days 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 LCOc1 fell as much as 1.5% to $67.86 a barrel and was at $68.39, down 52 cents, at 0737 GMT. U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $62.85, down 42 cents, after earlier dropping 1.5% to an intra-day low of $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% 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 U.S. 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 fell despite 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 published on Monday.

“We still believe in the absence of retaliation or disruptions, that oil prices will trend lower over the course of 1Q20, with the market remaining well supplied over the first half of 2020,” ING analysts said in a note.

U.S. crude oil stockpiles likely dropped last week for a fourth week in a row as exports ramped up although refined products stocks were expected to rise, 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.

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.

Reporting by Florence Tan; Editing by Kenneth Maxwell and Christian Schmollinger