Oil steadied after rallying almost 8 per cent in three days as investors weighed mixed signals from the White House on Iran and signs that an extension of the Opec+ production cuts may not be a fait accompli.
Futures in New York edged lower after being down as much as 1.2 per cent earlier. President Donald Trump imposed sanctions on Iran’s supreme leader, Ayatollah Ali Khamenei on Monday, while also asking in a tweet why the US is protecting the Strait of Hormuz, the world’s most important oil choke-point. Iran said the US move has shut the path to a diplomatic solution. Russia suggested it’s taking wait-and-see approach on the Opec+ output deal before the G20 summit in Japan at which Trump will meet with Chinese President Xi Jinping. Oil has jumped about 13 per cent since mid-June as rising tension between the US and Iran spurred concern there could be disruptions to global energy flows or even outright war. That reversed a decline driven by an escalation in the trade conflict between Washington and Beijing. The Trump-Xi meeting this week and the gathering of the Organization of Petroleum Exporting Countries and allied producers days later in Vienna may provide fresh direction for the market.
“Investors are taking a wait-and-see stance, as it’s not certain how things will go at the G20 summit,” said Jun Inoue, a senior economist at Mizuho Research Institute Ltd. in Tokyo. “Concern over the economic slowdown means WTI oil prices aren’t likely to rise to $65, or even $60, unless there’s a rapid escalation of tensions in the Middle East or major progress in the trade talks.”
West Texas Intermediate for August delivery declined 13 cents, or 0.2 per cent, to $57.77 a barrel on the New York Mercantile Exchange as of 7.36 am in London after falling as much as 70 cents earlier. The contract has rallied 7.7 per cent over the previous three sessions.
Brent for August settlement lost 34 cents, or 0.5 per cent, to $64.52 a barrel on London’s ICE Futures Europe Exchange. It dropped 0.5 per cent on Monday. The benchmark crude contract traded at a premium of $6.85 to WTI.
Trump told reporters at the White House that the sanctions would deny financial resources to Khamenei who is the one ultimately “responsible for the hostile conduct of the regime.” The penalties “mean the permanent closure of the diplomatic path with the government of the United States,” foreign ministry spokesman Abbas Mousavi was quoted as saying by the semi-official Iranian Students News Agency.
Russia’s Energy Minister Alexander Novak said “we need to wait until the G20 leaders’ meeting” in Japan this week and see “how the economic situation will develop” before deciding on the future of the Opec+ deal. Kazakhstan and Azerbaijan said that recent market data show there is a need to prolong the agreement. Saudi Arabia indicated earlier this month that it was sure the coalition will extend production cuts.