Oil Slips as Traders Take Stock of Tensions in the Middle East
Oil retreated from its surge over Middle East tensions as traders weigh the latest developments in the region against a risk-off mood triggered by renewed tariff threats from Washington.
Brent slipped near $69 a barrel after jumping 4.3% on Wednesday, the most since October, with signs the rally was overstretched.
Crude shot up after Iran threatened to strike US bases if nuclear talks fell through and the US told some staff to depart the embassy in Iraq. The UK Navy issued a warning to ships sailing across the Strait of Hormuz, through which over a quarter of the world’s oil travels.
On the trade front, President Donald Trump said he intended to send letters to trading partners in the next one to two weeks setting unilateral tariff rates, ahead of a July 9 deadline to reimpose higher duties on dozens of economies. That blunted appetite for risk assets.
Crude’s midweek surge jolted futures out of the narrow range they have traded in for most of the past month, highlighting its sensitivity to geopolitical tensions. The Middle East produces about a third of the world’s oil, including from Iran, as well as fellow OPEC+ members Saudi Arabia and Iraq. Prices are up 8% this month.
“The announced drawdown of all non-essential US Embassy staff from Baghdad and authorized departure of non-essential personnel from Bahrain and Kuwait raises the specter of a heightened threat environment in the region,” RBC Capital Markets LLC analysts including Helima Croft said in a note.
The move has also been coupled with big shifts in options pricing as traders assess the risk of escalation. Bullish call options on the global Brent benchmark are trading at premiums to bearish puts and volatility spiked.
The recent rally has pared oil’s decline this year, driven by expectations the US-led trade war would erode demand, and a move by OPEC+ to revive idled production. While Beijing and Washington agreed to ease tensions this week, Trump’s comments on unilateral tariffs revived concerns about the impact of his aggressive bid to rework the global trade order.
On Iran, Trump has consistently said he wants an agreement that curbs the nation’s atomic activities, and that the US could strike Iran if talks break down. Tehran says it is preparing a fresh proposal regarding the program before a sixth round of negotiations in Muscat, the Omani capital, on Sunday.
The leader of Iran’s Revolutionary Guard Corps told state TV that it was ready for any scenario and had military strategy at its disposal.
“Once again, Middle East tension elbows its way into consideration,” said John Evans an analyst a brokerage PVM. “With Iran threatening to strike American targets if it is bombed, the US evacuation of some Iraqi embassy personnel once again brings the eternal strife of the area front and centre.”
Brent for August settlement fell 1.1% to $68.97 a barrel as of 10:25 a.m. in Lonodn.
WTI for July delivery dropped 1.1% to $67.41 a barrel
Source : Bloomberg
