Oil Drops! Trump And Iran Remain A Conundrum
Oil prices fell after a volatile week of trading as markets focused on whether President Donald Trump would drag the U.S. into the conflict between Israel and Iran.
Brent crude fell to near $76 a barrel after closing slightly higher on Wednesday, while West Texas Intermediate crude neared $75. Prices have fluctuated in a range of about $8 this week, with volatility increasing, options turning more bullish and key spreads widening significantly in backwardation.
Senior U.S. officials are preparing for a possible strike on Iran in the coming days, but the situation is still evolving and could change, according to people familiar with the matter. Trump wrapped up a meeting with top advisers on Wednesday, but the White House gave few clues about the path forward.
When asked during the day if he was getting closer to bombing Iran, Trump said, "I might do it. I might not do it." The Wall Street Journal reported that the president approved plans for a military strike earlier this week but withheld final authorization as he weighed whether Tehran would meet his demands.
The biggest concern for oil markets centers on the Strait of Hormuz, but so far there are no signs that Tehran is trying to disrupt shipping through the narrow waterway at the entrance to the Persian Gulf. About a fifth of the world’s crude output passes through the strait.
“We don’t see it as a likely scenario right now, but given the precarious circumstances that the Iranian regime is in right now, I think everyone should be paying attention” to the Strait of Hormuz, Mike Sommers, president of the American Petroleum Institute, said in a Bloomberg Television interview.
Goldman Sachs Group Inc. estimates a geopolitical risk premium of about $10 a barrel for Brent due to the conflict, according to a note from analysts including Daan Struyven. However, the bank said its base-case scenario is for oil to fall to $60 in the fourth quarter, assuming no supply disruptions. “The political situation remains extremely tense, with no signs of easing,” said Gao Jian, an analyst at Shandong-based Qisheng Futures Co.
“The market is gradually shifting into a high-level price consolidation phase, awaiting further developments in the Middle East.” Meanwhile, U.S. crude inventories fell by 11.5 million barrels last week, the biggest drop in nearly a year. Stockpiles at the Cushing, Oklahoma, storage hub also fell, while gasoline inventories rose.
Brent for August delivery fell 0.3% to $76.50 as of 12:20 p.m. in Singapore after closing 0.3% higher on Wednesday.
WTI for July delivery, which expires on Friday, was little changed at $75.10 a barrel.
The more active August contract fell 0.1% to $73.43 a barrel.
Source: Bloomberg
