1 week ago
3
The price of oil tumbled Monday afternoon in an historical move as traders took Iran’s decision to bomb a United States base in Qatar as a signal that it was not planning to do the one thing that could really hurt America: Shut down the flow of oil by attacking crude shipments.
“When the response comes and it is muted, oil drops,” said Tom Kloza, chief market strategist at consultancy Turner Mason & Company, calling the limited Iran response far short of what many traders feared. “This rivals some of the historic selloffs,” Kloza said.
There’s still plenty Iran could do to push prices back up, and the markets could be getting it all wrong, But oil analysts say there are plenty of reasons fear has receded.
Adding to the odds that prices will settle, President Donald Trump announced that Israel and Iran had agreed to a complete ceasefire, though the situation remained unclear.
The price of West Texas Intermediate, the US benchmark, fell 7.2 per cent to US$68.51 per barrel in regular trading on Monday after Iran announced a missile attack on Al Udeid Air Base in Qatar, which the US military uses. Traders were relieved because Iran said it had matched the number of bombs dropped by the US on Iranian nuclear sites this weekend, a possible sign of a desire to de-escalate the conflict.
The price of oil fell further after Trump’s announcement of a “complete and total ceasefire” to be phased in over 24 hours. Oil fell almost four per cent to US$65.84 a barrel early Tuesday, and is now below where it was before fighting between Iran and Israel began over a week ago, when a barrel of US crude was just above US$68.
Markets were initially nervous Sunday as oil futures opened for trading. The price of Brent crude, the international standard, had jumped 4% as traders anxiously watched the Strait of Hormuz, a waterway on Iran’s southern border that legislators in Tehran were demanding be closed in retaliation. That would have walloped the global economy because much of world’s crude and liquefied gas passes through it.
Brent crude was trading at US$68.06 per barrel, down 3.5 per cent, early Tuesday.
Some traders doubted Iran would try to close the Strait of Hormuz even before its limited attack Monday. Much of the country’s own crude passes through the waterway — 1.5 million barrels a day — and oil is a big revenue generator that they would be loath to disrupt.
“It’s a silly notion that the Iranians would look to do that,” said Kloza. “I’ve been covering oil for 50 years and we’ve never seen the Strait of Hormuz compromised.”
At current oil prices, Tehran receives roughly US$40 billion in revenue annually from oil transiting the same waters. That is a tenth of what the entire country produces in goods and services.
Andy Lipow, a Houston-based oil analyst, says history suggests Iran won’t disrupt its own flow of oil, but that countries don’t always act in their economic interests.
“The question for the oil markets is, ‘Is his time different?’,” he said. “You might have an emotional decision.”
He notes also that Iran has other ways to push oil higher without completely closing off the waterway.
Iran could jam navigational devices, slowing transit, or drop mines in the water, forcing the US Navy to do more escorts. Or it could bomb a tanker, he said, sending the premiums that shippers need to pay insurers sky high.
If traders are wrong and oil shoots back up, the impact could be widely felt.
A surge in oil prices would come at a bad time. Trump insists that the inflation scare is largely over, but many economists think higher prices are still coming because the full impact of his tariffs are only now beginning to show up on everyday goods.
AP
English (US) ·