Oil futures fell sharply on Wednesday, logging lowest settlement since mid-December, as comments from President Donald Trump calmed nerves surrounding a potential war with Iran.
Prices had seen a sharp but brief spike 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
on the New York Mercantile Exchange fell $3.09, or 4.9%, to settle at $59.61 a barrel. That was the lowest finish for a most-active contract since Dec. 12, according to Dow Jones Market Data.
March Brent crude
lost $2.83, or 4.2%, to $65.44 a barrel on ICE Futures Europe, for the lowest finish since Dec. 16.
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, shortly after Iran launched attacks on two bases used by the U.S. in Iraq.
“It is now very unlikely that Iran will target anything because it fears escalation,” said Phil Flynn, senior market analyst at Price Futures Group. “So oil is probably safer now than before the attack.”
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.
Jay Hatfield, portfolio manager of the InfraCap MLP exchange-traded fund
said late Tuesday’s “largely symbolic counter attack on U.S. military facilities [by Iran and Trump’s] response indicating that Iran was standing down eliminated the immediate threat of a disruption in oil production.”
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 had 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.”
“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
fell 4.3% to $1.6488, while February heating oil
lost 3.7% to $1.9582 a gallon.
February natural gas
fell 1% to $2.141 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.