Oil dipped on signs that war-driven market tightness may still persist even as some supply disruptions in the Middle East ease.
Global benchmark Brent fell 1% to settle under $105 a barrel, while West Texas Intermediate dipped 0.5% to settle near $102. Saudi Arabia is seeking to return about half the capacity of its key East-West pipeline within days after shutting it last week following drone strikes, easing some concerns about lost crude oil cargoes stemming from the Iran conflict.
The increased clarity about flows eased some of the panic in the physical market, with Dated Brent falling further on Thursday to trade around $125 a barrel. Meanwhile, Reuters reported China asked Iran to help rein in Yemen’s Tehran-backed Houthi militants – a move that could potentially loosen their grip on the Bab el-Mandeb, another strait vital for shipping and energy markets.
But supplies still remain tight, offering support to prices, said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. And plenty of risks remain, with the US-Iran war hampering Middle East energy flows and the Russia-Ukraine conflict dragging on.
And conditions may yet deteriorate further. US President Donald Trump told Axios he was approaching a “big decision” on whether to re-escalate attacks on Iran ahead of a meeting with Gulf leaders next week in New York.
Crude has rallied by more than 70% this year, fanning the inflationary pressures that prompted the Federal Reserve to raise interest rates on Wednesday and signal further tightening. Stocks joined bonds higher on falling oil prices and optimism that Fed policy can help keep inflation under control even amid energy shocks from the Iran war.
The decline in oil prices on Thursday also partly reflects some profit-taking after two weeks of gains. Short-term indicators showed WTI shifted out of overbought territory on Wednesday, making an extensive sell-off less likely. And technical indicators show Brent futures have support between $100 and $102, meaning it will take considerable developments to push prices below that level, according to Fawad Razaqzada at Forex.com.
“We see this as a buy-the-dip opportunity across crude and refined products,” said Arne Lohmann Rasmussen, chief analyst at Global Risk Management in Copenhagen. “Prices have eased, but the underlying supply risks have not gone away.”
While roughly half of normal flows are set to return soon to the East-West pipeline – a vital workaround to shipments going via Hormuz, which remains contested by Washington and Tehran – it’s not expected to return to full capacity for another six weeks.
Meanwhile, estimates vary for volumes going through Hormuz, which links the Persian Gulf to global markets. US Energy Secretary Chris Wright told Fox Business 18 million barrels of crude and products went through one day earlier this week, and the seven-day average was 11 million barrels a day. Clarksons Research has put the daily figure at about 8 million barrels.
The duration of the Iran war, launched by the US and Israel in February, and the disruption to energy flows, has become increasingly challenging to predict, JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a note on Thursday.
“For the first time since the start of the Iran conflict, we don’t have a baseline view,” Kaneva said. “We simply don’t know how to model the endgame.”
Oil Prices
- WTI for October delivery fell 0.5% to settle at $101.91 a barrel.
- Brent for November settlement fell 1% to settle at $104.82 a barrel.
Also in the US, Congress approved to a bill to hand Trump new powers to impose tariffs on countries buying Russian petroleum products, potentially including China and India.
Kyiv has for months been targeting Russian refineries with waves of drone attacks. That has prompted Moscow to ban most exports of diesel to prioritize local supplies, and officials are considering extending the curb through October. Another attack overnight forced a refinery to halt crude processing, Reuters reported.
source: RIGZONE