Oil held losses but continued to fluctuate as a fragile ceasefire between Israel and Iran helped cool a conflict that’s rocked the energy-rich Middle East.
Brent crude, the international benchmark, was down 3.8 per cent in London, remaining below $69 a barrel. Prices earlier pared some of their loss as US President Donald Trump accused both sides of violating the truce and called on Israel to stop dropping bombs, while insisting the accord would ultimately hold.
Crude has declined sharply this week – including a 7 per cent rout on Monday – despite the arrival of a long-feared clash that saw America bomb Iran’s nuclear program and the Islamic Republic retaliate against US bases. While prices spiked in the wake of Israel’s initial attack, the conflict hasn’t had any significant impact on oil flows from the Gulf and exports from Iran itself have surged.
Trump cheered crude’s slide on Tuesday, saying “I love it.”
The price slump brings the market back to where it was before Israel attacked Iran on June 12. Traders are looking toward a looming surplus later in the year, with a supply surge from producers both inside and outside the Opec+ alliance set to outpace growth in demand. The pullback also offers a fresh reminder that geopolitical disruptions to crude prices can ultimately be short-lived.
“The geopolitical risk premium built up since the first Israeli strike on Iran almost two weeks ago has entirely vanished,” said Tamas Varga, an analyst at brokerage PVM. “There are growing hopes that investors will be able to focus on economic policies instead of geopolitics.”
A sustained market retreat will alleviate fears about elevated inflation, fulfilling one of Trump’s key aims just hours after he took to social media calling for lower oil prices. Still, lower crude dents the economies of producer nations, particularly in the Middle East, and will refocus discussions around the financial health of major oil companies.
In a sign of reduced tensions, Brent’s prompt spread – the difference between its two nearest contracts – narrowed to 92 cents a barrel in backwardation. While that’s still a bullish pattern, with nearer-term prices above those further out, it’s down from last week’s closing peak of $1.77. The key December-December spread fell back into contango – the opposite, bearish pricing structure.
In wider energy markets, European natural gas fell by as much as 13 per cent as fears of disruptions to traffic through the Strait of Hormuz – a conduit for 20 per cent of seaborne gas shipments – started to fade.
The Mideast crisis erupted about two weeks ago as Israel attacked Iran in a bid to eradicate its nuclear program, decimate its leadership and degrade its military, with Tehran firing missiles in reply. In a major escalation, Trump ordered a strike against the Islamic Republic’s nuclear sites, prompting Iran to launch a limited missile salvo against a US airbase in Qatar.
The Opec+ alliance – which includes Iran – has been reactivating idled capacity at a rapid clip in a bid to recapture market share. The group is due to hold a video-conference July 6 to consider a further supply hike in August. Trump has made plain he favours cheaper energy to buttress his economic agenda, including his aggressive trade policy.
“In a week and a half, Opec+ will agree to increase production by another 400,000 barrels a day,” said Robert Rennie, head of commodity and carbon research at Westpac Banking Corp. “As we move into the third quarter – and global production rises and demand wanes, driving inventory sharply higher – we will see prices probing the lower end of the previous $60-to-$65 range.” – Bloomberg
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