London — Oil prices on Tuesday surrendered some of the gains of recent days as investors reconsidered the likelihood of immediate supply disruptions in the Middle East after the United States killed a top Iranian military commander.
Brent crude was down 63 cents, or 0.9%, at $68.28 a barrel by 1452 GMT. U.S. West Texas Intermediate (WTI) crude was down 55 cents, or 0.9%, at $62.72.
Prices surged during the previous two sessions, with Brent reaching its highest since September while WTI rose to its strongest since April.
The gains were on fears of escalating conflict and potential Middle East supply disruptions after the Jan. 3 Baghdad drone strike that killed Qassem Soleimani, head of Iran’s elite Quds Force. Iran has vowed strong revenge.
“We still believe, in the absence of retaliation or disruptions, that oil prices will trend lower over the course of the first quarter of 2020, with the market remaining well supplied over the first half,” ING analysts said in a note.
Consultancy Eurasia Group said that Iran is likely to focus more narrowly on U.S. military targets rather than energy targets.
“That’s not to say it won’t continue low-level harassment of commercial shipping or regional energy infrastructure, but these activities will not be severe,” it added.
Julius Baer analyst Carsten Menke said the Iranian regime was “quite rational and strategic”.
“The costs of direct military confrontation are prohibitive, and disrupting oil flows would alienate loose allies such as China and India,” he said.
“The closure of the Strait of Hormuz, a key choke point of global oil flows, remains a very unlikely event.”
However, the United States Maritime Administration website renewed its warning about threats to U.S. commercial vessels from Iran and its proxies in the Gulf and surrounding area.
Prices also fell despite higher compliance among the Organization of the Petroleum Exporting Countries (OPEC) on meeting production quota curbs aimed at reducing supply.
OPEC members pumped 29.5 million barrels per day (bpd) last month, down 50,000 bpd from November’s revised figure, according to a Reuters survey published on Monday.
U.S. crude oil stockpiles are likely to have dropped for a fourth week last week as exports ramped up, though refined products stocks are expected to have risen, a Reuters poll showed on Monday.
The average estimate by six analysts was for crude stocks to have fallen by 4.1 million barrels in the week to Jan 3.
Even before Soleimani’s death, investors were increasing their bullish WTI holdings, with money managers raising net long positions in the week to Dec. 31, the Commodity Futures Trading Commission said on Monday.
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