Oil Rises to Highest Since August on Iran Conflict Concerns
Oil settled at its highest level since August on concerns that the US and Iran are inching closer to a fresh conflict.
West Texas Intermediate rose to more than $66 a barrel on Thursday, the second-to-last day of trading of the March contract, while Brent settled below $72. The US military is stationing a vast array of forces in the Middle East, with President Donald Trump saying that Iran has ten to fifteen days at most to secure a deal over its nuclear program. The US deployment is unlike any since 2003, when it amassed forces ahead of the invasion of Iraq.
A potential war would jeopardize flows from a region that pumps about a third of the world’s oil. However, Trump risks angering voters ahead of midterm elections this year if a spike in crude prices makes gasoline more expensive at the pump.
The US military buildup in the region means Iran’s window to reach a diplomatic agreement over its atomic activities is at risk of closing, according to the head of the United Nations nuclear watchdog. The agency has discussed concrete proposals with Iran to inspect sites bombed last year by Israel and the US.
“The failure to resolve core areas of contention continues to tip the scales in favor of another military confrontation,” RBC Capital Markets analysts including Helima Croft wrote in a note. “The massive buildup of US military assets in the region as well as the recent Iranian naval exercise in the Strait of Hormuz seem to suggest that the launch sequence for a second military conflict has commenced.”
A major strike against Iran — where leaders are anxious about regime stability following widespread unrest — risks entangling the US in its third war in the Middle East since 1991.
The commodity briefly pared gains after Trump said at the Board of Peace meeting in Washington that the US has to “make a meaningful deal” with Iran. Later, Trump said “really bad things will happen” without an Iran deal.
The increased risk premium is also showing up in oil options markets. Bullish call options have been trading at large premiums to puts for much of this year as traders protect against the risk of a price spike, while the equivalent of 10 million barrels of Brent June $100 calls changed hands on Wednesday.
Adding to bullish momentum, US crude stockpiles fell by 9 million barrels, the biggest drop since early September, figures from the Energy Information Administration show, while oil product inventories also declined across the board.
Source : Bloomberg.com
