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Oil halts drop as US foreign policy team shakeup boosts risks

Mar 14 2018 10:17
Heesu Lee, Bloomberg

Seoul - Oil halted losses near $61 a barrel as investors weighed a potential increase in geopolitical tensions during the fallout from the sudden firing of US Secretary of State Rex Tillerson.

Futures were little changed in New York. Prices seesawed on Tuesday after President Donald Trump ousted Tillerson, whom he had disagreements with over key issues, including OPEC member Iran.

Analysts from Facts Global Energy and the Royal Bank of Canada warned of a risk that US relations with the Persian Gulf state may deteriorate while a resumption of sanctions on the Middle East producer could curb its exports and boost prices.

Crude has struggled to recover losses from last month’s broader market slump after topping $66 a barrel in January. While a brighter economic outlook has underpinned demand expectations, surging American production and increasing inventories continue to remain a challenge to the Organisation of Petroleum Exporting Countries and its allies including Russia that are trying to prop up prices via output curbs.

“The dismissal of Tillerson definitely raises the geopolitical risk premium in the oil market,” Will Yun, a commodities analyst at Hyundai Futures, said by phone in Seoul.

“While the market is somewhat on a downward slope with concerns remaining over rising US crude production, Trump’s reshuffle could potentially buoy prices.”

West Texas Intermediate for April delivery traded at $60.79 a barrel on the New York Mercantile Exchange, up 8 cents at 08:47. The contract fell 65 cents to $60.71 on Tuesday after rising as much as 61c. Total volume traded was about 35% below the 100-day average.

Brent for May settlement added 1c to $64.65 a barrel on the London-based ICE Futures Europe exchange. Prices sank 31c to close at $64.64 on Tuesday. The global benchmark traded at a $3.84 premium to May WTI.

While other markets including equities reacted to the Tillerson news negatively, the response in the oil market has been more bullish. Trump’s plan to replace the former Exxon Mobil.

CEO with Iran hawk and CIA Director Mike Pompeo increases the chances of the US exiting a deal under which international sanctions were removed on the Middle East nation in return for a curbing of its nuclear programme, according to FGE.

If the measures were reinstated, oil exports from Iran could drop by 250 000 to 500 000 barrels a day by the end of this year, the industry consultancy said in a note. The reshuffle has big implications for both Iran as well as US policy toward crude producer Venezuela, which is positive for prices, RBC chief commodities strategist Helima Croft told Bloomberg.

In shale news, the American Petroleum Institute was said to report that nationwide crude stockpiles rose 1.16 million barrels in the week through March 9. That compares with a 2.5 million barrels gain as forecast by analysts in a Bloomberg survey. The API data also showed distillate inventories sank by 4.26 million barrels and gasoline stockpiles fell by 1.26 million last week.

Oil-market news:

• China’s factory output and investment growth unexpectedly accelerated in the first two months of the year amid robust global demand. “The restraint exhibited by producers so far leaves us comfortable with our 1.1m b/d US crude oil production growth forecast for 2018,” Goldman Sachs analysts including Damien Courvalin wrote in a report.

• Indian Oil has developed refining processes that may help it save at least $1.5bn in costs as well as challenge global giants in the technology leasing business.

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commodities  |  markets  |  oil


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