Oil futures on Monday posted their first loss in four sessions, pulling back from a pop to the upside in Asian trading hours brought on by a drone attack that killed three U.S. troops in Jordan.
A wider Middle East conflict could threaten crude supplies, leaving oil traders on edge, but some analysts expect the U.S. to avoid further escalation of the conflict in the region.
Concerns over China’s economy, and the outlook for energy demand, also helped to keep any oil price gains in check.
Price moves
-
West Texas Intermediate crude for March delivery
CL00,
+0.56% CL.1,+0.56% CLH24,+0.56% fell $1.23, or 1.6%, to settle at $76.78 a barrel on the New York Mercantile Exchange after posting gains in each of the past three trading sessions. -
March Brent crude
BRNH24,
the global benchmark, declined by $1.15, or 1.4%, at $82.40 a barrel on ICE Futures Europe. April Brent
BRN00,
+0.57% BRNJ24,+0.57% , the most actively traded contract, fell $1.12, or nearly 1.4%, at $81.83 a barrel. - February gasoline RBG24 declined by 2.9% to $2.23 a gallon, while February heating oil HOG24 lost 0.3% to $2.83 a gallon.
- Natural gas for February delivery NGG24 settled at $2.49 per million British thermal units, down 8.2%, on the contract’s expiration day.
Market drivers
WTI and Brent crude both popped by more than $1 a barrel in Asian trading hours as traders reacted to the drone attack, which killed three U.S. service members and injured more than 30.
U.S. officials blamed the attack on an Iran-backed militia. President President Biden vowed retaliation.
The deaths of U.S. troops means the Israel-Hamas war “may have entered a new era of risk when it comes to global oil supplies,” Phil Flynn, an analyst at Price Futures Group, told MarketWatch. While the initial price surge faded, “the fundamental outlook is getting dangerously bullish,” he said.
On the other hand, the U.S. administration may choose to “contain the escalation and carry out a limited and local response, for fear of entering the electoral race with more internal pressure to end the raging wars,” said Samer Hasn, market analyst and research team member at XS.com, in emailed commentary.
In any case, “it appears that oil markets are still looking more worriedly at the future of oil demand from China than any other geopolitical factor,” Hasn said.
Read: Oil prices fall despite ‘grave escalation’ of Middle East crisis. Here’s why.
Oil futures rallied last week to their highest since November, but with gains attributed in part to production outages in the U.S. and more upbeat expectations around economic growth.
Meanwhile, concerns about the risk of miscalculation in the Middle East are growing, “as rational actors may unintentionally become entangled in an escalatory spiral,” Stephen Innes, managing director at SPI Asset Management, said in a note.
“Given the inherent complexity of Middle East conflicts, achieving a stable outcome in the region appears unlikely at this stage, signaling the potential for continued instability with broad global repercussions where higher oil prices are the chief concern, especially in a severe supply disruption scenario, where maritime traffic in the Strait of Hormuz is [choked] leading to significant rise in prices,” he wrote.
Also see: Natural-gas futures drop over 8%, biggest daily loss in nearly 2 week
In related news Monday, the U.S. Energy Department said that it will buy 3.1 million barrels of crude oil for the Strategic Petroleum Reserve for delivery in May. The oil will be purchased at an average price of $78.14 a barrel, below the average of around $95 that the SPR crude was sold for in 2022.
To date, the Energy Department has purchased a total of 20.13 million barrels of oil for the reserve, and accelerated nearly four million barrels of exchange returns, amid the agency’s efforts to refill the SPR. It said it would issue a new solicitation later this week to buy more oil for the reserve, with a June delivery date.
