Crude Slides on Easing Tensions
by Bloomberg | M. Gindis, A. Longley, G. Levin
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas
Oil fell as traders priced in a limited US-Iran conflict, easing initial concerns that energy infrastructure would come under attack again.
West Texas Intermediate crude futures tumbled 2% to end the session near $72 a barrel, while Brent settled near $76 after rallying by 5.2% on Wednesday.
Visible traffic through the Strait of Hormuz waterway — which connects the Gulf to global markets — was severely restricted on Thursday after the US struck Iran for a second straight day, with a fragile truce between the two sides looking increasingly shaky.
Still, traders drew some reassurance from Washington’s decision to avoid targeting Iranian energy infrastructure and from President Donald Trump’s earlier comments that he does not expect a return to full-scale war, fueling speculation that shipping flows may soon rebound.
“The tone overnight was somewhat less escalatory, the strikes appeared relatively contained,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “For now, investors are still expecting a gradual return to normalization. Recent developments may delay that thesis, but they don’t abandon it.”
Brent’s surge on Wednesday also pushed futures through levels of large options open interest. Such activity can exacerbate price moves in both directions if dealers who sold options need to buy futures when prices rally above key levels and sell on the way down, in order to keep their books balanced, a market situation referred to as “negative gamma.”
“We expect the renewed tension in the Middle East between the US and Iran to be relatively short-lived,” Macquarie Group strategists including Vikas Dwivedi wrote in a note Thursday. “That said, selling into rallies does not present favorable risk-reward either; today’s volume may suggest the beginning of a short-covering process.”
Observable movements largely occurred along an Iran-approved route nearer to the waterway’s north, while the US-supported Omani corridor was quiet. Still, prior to the ceasefire deal, millions of barrels a day were crossing the waterway dark, only appearing when satellite images became available days later.
Shipowners have painted a mixed picture of their willingness to continue transiting the sea corridor following a spate of Iranian strikes against commercial ships.
Goldman Sachs Group Inc. said that recent attacks in the strait are a sign that Iran’s willingness to let vessels flow is the main constraint for a swift recovery in Hormuz volumes, rather than the amount of shipping capacity. It said that Hormuz disruptions could slow down a production recovery in the region.
Oil Prices
Oil prices fell as traders bet the US-Iran conflict would remain limited.
- Brent for September settlement was 2.2% lower, ending the session at $76.30 a barrel.
- Earlier, futures rose to as much as $79.25.
- WTI for August delivery slid 2% to close at $72.08 a barrel.
by Bloomberg | M. Gindis, A. Longley, G. Levin
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas