Futures Movers: Oil prices drop as Trump's speech calms drums of war with Iran

Futures Movers: Oil prices drop as Trump's speech calms drums of war with Iran

8 Jan    Finance News

Oil futures fell sharply on Wednesday as comments from President Donald Trump calmed nerves surrounding a potential war with Iran.

Prices had seen a sharp but brief spike in prices late Tuesday, brought on by Iranian missile strikes at bases in Iraq where U.S. troops are stationed. In a speech Wednesday, Trump said Iran “appears to be standing down” following those strikes, and announced fresh sanctions on the Islamic Republic. Trump said the U.S. suffered no casualties.

“Trump’s statement on Iran delivered more saber-rattling with hints of a premature victory lap,” said Edward Moya, senior market analyst at Oanda. “Risk assets extended their gains after it was clear this speech was de-escalating the US-Iran conflict.”

Ahead of the Trump’s speech, perceptions that the assault could mark the end of the U.S.-Iran conflict rather than an escalation, as well as data showing an unexpected weekly climb in U.S. crude stockpiles, had combined to pull oil prices lower.

West Texas Intermediate crude for February delivery CLG20, -3.96% on the New York Mercantile Exchange fell $2.66, or 4.2%, to $60.04 a barrel on the New York Mercantile Exchange, while March Brent crude BRNH20, -3.41% lost $2.62, or 3.8%, to $65.65 a barrel on ICE Futures Europe.

WTI jumped as high as $65.65 a barrel, its highest intraday mark since late April, while Brent soared to $71.75 a barrel, the highest in more than three months, immediately after Iran launched attacks on two bases used by the U.S. in Iraq. Iran described the attacks as revenge for a U.S. drone strike in Iraq last week that killed Qassem Soleimani, a top Iranian military commander and sparked vows by Tehran to retaliate.

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“Oil prices should remain volatile but should stay supported as a complete end to the US-Iran conflict seems unlikely,” said Moya, in a market update. “We may not see a big disruption to oil production just yet, but risks remain…”

Iran’s foreign minister Javid Zarif, said via Twitter that Iran didn’t seek further escalation but would “defend ourselves against any aggression.” Iranian Supreme Leader Ayatollah Ali Khameini, however, vowed further retaliation for the killing of Soleimani and said that Iran’s goal was to expel U.S. forces from the region, the Wall Street Journal reported.

Meanwhile, data Wednesday from the Energy Information Administration showed that U.S. crude supplies edged up by 1.2 million barrels for the week ended Jan. 3. That followed declines in each of the previous three weeks. Analysts polled by S&P Global Platts forecast a decrease of 3.7 million barrels, while the American Petroleum Institute on Tuesday reported a 5.95 million-barrel decline.

The EIA data showed supply increases of 9.1 million barrels for gasoline and 5.3 million barrels for distillates. The S&P Global Platts survey had shown expectations for a climb in supplies of 4.5 million barrels for gasoline and 5 million barrels for distillates.

“A triumvirate of bearish builds in the weekly EIA reports are adding momentum to crude’s overnight price reversal as fears of escalating tension are unwound,” Matt Smith, director of commodity research at ClipperData, told MarketWatch.

“Crude inventories have shown a surprise build, driven by the combo of a big drop in refinery runs, a rebound in imports and an easing in export volumes,” he said. Refining activity has dropped back below 17 million barrels per day…and is now a whopping 669,000 bpd below year-ago levels.”

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“Nonetheless, both distillates and gasoline managed to muster large builds as demand remains both subdued and below year-ago levels on the four-week average,” said Smith.

On Nymex, February gasoline RBG20, -3.61%  fell 3.6% to $1.66, while February heating oil HOG20, -3.16%  lost 3.2% at $1.9667 a gallon.

February natural gas NGG20, -1.48%  fell 1.4% to $2.132 per million British thermal units ahead of Thursday’s EIA update on supplies of the fuel, which is expected to show a weekly decline of 50 billion cubic feet, according to a survey of analysts by S&P Global Platts.

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