Oil Dives in Final Minutes of Trading as Economic Woes Dominate
Tensions remain high after British forces seized a tanker carrying Iranian crude near Gibraltar last week.
(Bloomberg) -- Oil plunged in the last few minutes of trading as economic anxiety hangs over the market.
Futures gave up more than 1% of the day’s gains moments before settlement, closing just 0.3% higher in New York on Monday. Prices had risen for much of the session after BP Plc diverted a vessel in the Persian Gulf, fearing it might be targeted for retaliation after British forces seized an Iranian tanker last week. Saudi Arabia, meanwhile, said it had foiled an attack on a commercial ship in the Red Sea by Iran-backed Houthi rebels.
The retreat near the close suggested traders are still contending with an “overriding negative sentiment,” said Ashley Petersen, an oil analyst at Stratas Advisors LLC in New York. Relatively light summer trading volumes may have exacerbated the slide.
“This could be an example of markets still expecting the worst,” she said.
Crude slid last week as worries about deteriorating global demand outweighed a move by the Organization of Petroleum Exporting Countries and its allies to extend production cuts. Investors are also waiting for Federal Reserve Chairman Jerome Powell’s testimony to Congress this week, which may offer clarity on the central bank’s plans for rate cuts.
“Iran news is certainly dominating sentiment in the market, but I also think the post-OPEC selloff was a bit unwarranted,” said Michael Tran, managing director for energy strategy at RBC Capital Markets LLC in New York. So investors “woke up today to more geopolitical risk and a market that was likely oversold.”
West Texas Intermediate oil for August delivery closed 15 cents higher at $57.66 a barrel on the New York Mercantile Exchange. It had risen as much as 1.7% earlier in the day. Brent for September settlement fell 12 cents to $64.11 a barrel on the ICE Futures Europe Exchange.
With tensions escalating, European powers urged Iran to reverse its decision to breach the levels of uranium enrichment permitted under a 2015 nuclear accord. On Saturday, France and Iran agreed to resume talks by mid-July. Yet U.S. Secretary of State Michael Pompeo said in a tweet Sunday that Iran’s latest expansion of its nuclear program “will lead to further isolation and sanctions.”
WTI will struggle to sustain a move above the low $60s, according to RBC’s Tran. New refinery capacity in China means Asia is saturated with gasoline and other fuels, capping demand for crude, he said.
“In order to get a sustained and material rally, we first need to clean up the sloppy global market for refined products,” Tran said.
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--With assistance from Sharon Cho, Tsuyoshi Inajima and Harkiran Dhillon.
To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Catherine Traywick, Mike Jeffers
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