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Oil prices fell more than 4 percent on Thursday after US President Donald Trump said the killings in Iran had stopped and traders backed off their bets on military action against one of the world’s leading crude producers.
International benchmark Brent crude fell nearly $3 a barrel to $63.60, erasing most of this week’s gains.
Protests in Iran, new US tariffs on buyers of Iranian oil and the possibility of US intervention following reports of massive casualties helped crude oil prices rise above its 200-day moving average at $66.82 a barrel earlier this week.
Iran produces about 3 percent of the world’s oil and exports 2 million barrels of crude a day, almost all of it to China. It also controls the Strait of Hormuz, the narrow waterway through which about 30 percent of the world’s marine oil flows every day, and a choke point that regularly attracts market attention during periods of regional tension.
But prices fell sharply after Trump’s comments on Wednesday and continued to fall as traders digested the cordial comments from Iranian Foreign Minister Abbas Araghchi. He told Fox News that he was “confident” that “there are no plans to execute”.
Traders said market focus has increasingly shifted from geopolitical risks to signs of adequate supply, even as the situation in Iran remains volatile.
On Wednesday, the U.S. Energy Information Administration reported that U.S. crude oil inventories rose by 3.4 million barrels in the week to Jan. 9, nearly double analysts’ expectations. Traders also hope Venezuela will soon resume oil exports following a US naval blockade imposed in mid-December.
“Oil prices are resetting to reflect the continued and worrying narrative of the market anticipating oversupply in the near future,” PVM Energy’s John Evans said in a note. He said evidence of adequate supply would see prices “continue to move past the global flashpoint (…) but will be substantially corrected”.
Energy Aspects analysts said this week’s rally has already reduced the risks of US action against Iran. He added that, even if Washington were to intervene, prices could still fall if Iranian oil exports were maintained: “The stage could be set for a classic ‘sell the facts’ response”.
