Traders priced in possible disruptions to the supply on 18th February, with oil prices up over 4 per cent as traders feared conflict between the U.S. and Iran and as a result of no agreement in the Ukraine-Russia talks at Geneva.
Brent crude futures eased up $2.93 and 4.35 per cent at $70.35 a barrel. U.S. West Texas Intermediate (WTI) crude futures were up $2.86 (4.59) at $65.19. The contracts also had their largest settlements since January 30, and this came a day after bottoming out two weeks earlier.
“Both contracts fought their way back, gaining over $3 toward the end of the session on media reports that Israel had been stepping up its alert on increased signs of a possible attack on Iran by the U.S. and Israel,” according to Phil Flynn, senior analyst with Price Futures Group.
The U.S heating oil futures also shot up by 5%.
“Geopolitics alone is the cause of the big moves in oil prices today; they are also still responding to headlines regarding the U.S. and Iran, Russia and Ukraine meetings,” said Andrew Lipow, president of Lipow Oil Associates.
He added that the oil market is factoring in further risk of a break in the supply.
Tuesday, oil dropped as the foreign minister of Iran stated that Tehran and Washington had come to an agreement on the principles that would govern the nuclear negotiations. Iranian semi-official Fars news agency on Wednesday announced that Iran and Russia are going to hold a naval drill in the Sea of Oman and the northern Indian Ocean on Thursday.
Talks commenced on Tuesday with state media in Iran announcing that Iran was temporarily closing the Strait of Hormuz, a major route in the world oil supply, as a security measure, as its elite Revolutionary Guards were on military exercises in the Strait of Hormuz. State media later reported that the strait was closed for a few hours, but it was not clear whether it was completely open.
“Iran is aware of the negotiation styles of (U.S. President Donald) Trump. It is also aware that the last thing that Trump wants is a disruption in the export of oil through the Strait of Hormuz and an oil price that soars high to 150 a barrel,” according to a note by SEB chief commodities analyst Bjarne Schieldrop. Iran will have time to negotiate in peace.
In a client note distributed on Tuesday, political consultancy Eurasia Group said it believes a 65 per cent chance existed of the U.S. launching military attacks on Iran before the end of April.
According to John Kilduff, partner with Again Capital, “everyone is tracking how much military equipment is pouring into the region courtesy of the U.S., and that is a pointer that hostilities are coming.”
PEACE TALKS between RUSSIA and UKRAINE fail
Peace talks between Ukraine and Russia in Geneva on two days concluded without any breakthrough on Wednesday, with President Volodymyr Zelenskiy accusing Moscow of dragging its feet over the U.S.-mediated attempts to halt the four-year-old war.
Trump has turned to Ukraine on numerous occasions, requesting that the nation settle on a deal that is likely to have some agonising concessions because Russian troops have been battering its power supply and making strides on the battlefield.
Zelenskiy characterised the negotiations as being hard.
There has been a fresh processing to tighten the reins on Russian exports, thus in the event that these negotiations do go awry, as Zelenskiy indicated they are doing, then we may finally get a material reduction in the quantity of Russian exports that find their way to the world market, and that is conducive, of course, said Again Capital’s Kilduff.
Last week, the U.S. crude, gasoline and distillate inventory declined, according to the market sources using the American Petroleum Institute figures on Wednesday, contrary to the expectation in a poll conducted by Reuters that the increase in crude inventory would be 2.1 million barrels. Thursday will see traders tracking official U.S. oil inventory reports on the Energy Information Administration.
