January 13, 2020

Oil Extends Biggest Weekly Loss Since July as Gulf Tensions Ease
(Bloomberg) -- Oil extended its biggest weekly decline since July as an easing of geopolitical tension in the Middle East turned attention back to a flood of new supply set to hit the market this year.Futures in New York fell as much as 1.5% Monday to the lowest level in over a month. The threat of an outright war has receded since Tehran fired missiles at U.S.-Iraqi bases last week in retaliation for Washington’s assassination of its top general. In Libya, warring factions have called a cease-fire in their nine-month conflict. But the situation in Iran remains volatile amid protests against the government’s accidental downing of a commercial airliner.“There is a continuing sense that the geopolitical risk from Iran has come down dramatically,” said Phil Flynn, a senior market analyst at Price Futures Group Inc. “There is reduced risk to supply and that’s weighing on market sentiment.”Oil prices are now back where they were in mid-December, with the market seemingly shrugging off the chance of more disruptions in the Persian Gulf. The lack of a geopolitical risk premium is partly due to plentiful supplies of U.S. shale and a torrent of new crude from non-OPEC countries including Brazil, Guyana and Norway. On the demand side, the U.S. and China are set to sign their limited trade deal this week, which may improve sentiment.See also: How the Market Learned to Live With a Middle East in Flames“We are now rolling into a period with a softer fundamental oil-market balance,” said Helge Andre Martinsen, senior oil market analyst at DNB Bank ASA. “We need actual supply disruptions to push prices close to $70. But watch out for increasing Iranian proxy activity and an acceleration of Iran’s nuclear program in the months ahead.”Brent futures for March settlement were 64 cents lower at $64.34 a barrel on the ICE Futures Europe Exchange after losing 5.3% last week. The global crude benchmark traded at a $6.04 premium to WTI for the same month.West Texas Intermediate crude for February delivery fell 73 cents to $58.31 a barrel on the New York Mercantile Exchange as of 10:33 a.m. local time. The contract fell 6.4% last week, the most since mid-July. The February contract slipped to 1 cent a barrel below March futures, marking the first time since November the first month traded at a discount to the second month.While the chances of imminent war have lessened, relations between the U.S. and Iran remain combustible. Tehran has said it will stop abiding by limits on uranium enrichment, while the U.S. imposed new sanctions on the Islamic Republic. Oil markets are underestimating the risks in the Middle East and may be wrong in assuming Iran’s retaliation is over, said Jason Bordoff, head of the Center on Global Energy Policy at Columbia University in New York.Meanwhile, Brazil and Guyana are set to add more than 400,000 barrels of combined daily supplies to the market this year, a volume that would offset most of the auxiliary cuts agreed to by OPEC and its allies in late 2019, according to Stratas Advisors.\--With assistance from James Thornhill.To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net;Sheela Tobben in New York at vtobben@bloomberg.netTo contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Christine BuurmaFor more articles like this, please visit us at bloomberg.com©2020 Bloomberg L.P.
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