Oil steadied after rapidly shedding all of its gains from the clash between the U.S. and Iran, as traders waited to see whether any further hostilities will disrupt exports from the Middle East.
Brent held above $65 a barrel on Thursday, having tumbled 4.2% the previous day as President Donald Trump downplayed the impact of missile attacks on American bases in Iraq, allaying concerns that Washington and Tehran were headed for military confrontation.
Still, the Pentagon said it’s too early to tell what Iran will do next, and Sky Arabia reported a new rocket attack targeting the Green Zone in Baghdad on Thursday, reflecting heightened political tensions across the oil-rich region.
Oil surged last week when the U.S. assassinated Iran’s most powerful military commander, Qassem Soleimani, in an airstrike in Baghdad, and then climbed to almost $72 a barrel Wednesday after Iran retaliated. Yet the gains very quickly fizzled as the prospect of war receded. With U.S. shale-oil supplies plentiful and spare capacity across OPEC nations high, it would take a disruption to physical supplies to keep prices elevated, according to Goldman Sachs Group Inc.
“As geopolitical tensions appear to enter a new equilibrium, rather than escalate further, the overall supply conditions in the market tend to favor oil reverting lower,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA. “The oil market could turn its attention back to assessing fundamentals again and find that they are not particularly price-supportive.”
Brent futures for March settlement fell 2 cents to $65.42 a barrel on the ICE Futures Europe exchange as of 10:46 a.m. in London after rising as much as 1% earlier. The contract slumped 4.2% to settle at $65.44 on Wednesday, the lowest since Dec. 16, after earlier rising as much as 5.1%.
West Texas Intermediate for February delivery was 7 cents higher at $59.68 a barrel on the New York Mercantile Exchange after climbing as much as 1.2% earlier. Futures initially climbed above $65 a barrel on Wednesday, yet declined 4.9% to close at $59.61, the lowest since Dec. 12.
The Pentagon’s Joint Chiefs of Staff Chairman Mark Milley told reporters that Iran targeted personnel with the intent to kill, while Iranian President Hassan Rouhani tweeted that the government’s final answer to the assassination will be to “kick all U.S. forces out of the region.”
“We saw furtive albeit modest injections of a fear premium but an equally quick deflation as soon as it appeared that oil supply from the region had not been affected,” said Vandana Hari, founder of Vanda Insights in Singapore. “However, it may be a mistake to regard this is as an enduring cool down.”