Iran standoff after tanker seizure fails to lift oil prices
TENSIONS in the Arabian Gulf have failed to lift prices in the oil market, where sentiment has shifted dramatically in recent days, with hedge funds, producers and traders all betting on weakness in worldwide demand.
The oil market has struggled to sustain a rally despite supply restrictions that generally would be considered bullish. U.S. sanctions on Venezuela and Iran have removed more than 1.5 million barrels of daily supply from the market, OPEC extended a supply-cut deal into 2020 and tensions between the United States and Iran are rising.
Please log in or register with Independent.ie for free access to this article.
Yet, Brent futures have struggled to sustain a move above $65 a barrel and slumped about 7pc last week, while US futures have rarely moved above $60 a barrel.
"Given all the bullish news we've had, the flat price has hardly changed," said Janelle Matharoo of InsideOut Advisors, a commodities trading and risk management consultancy. "Fifteen years ago, this kind of news would have shifted the price $20, $30 per barrel."
Hedge funds and investors have exited bullish bets on the realization that demand may be weaker than anticipated while US production surges. Producers, meanwhile, have rushed to lock in future prices, betting that this may be their best chance to protect against a selloff, oil traders and brokers said.
Front-month, or current, futures contracts have not had a massive selloff - but looking at later-dated contracts, the underlying weakness is apparent.
The premium on front-month Brent crude futures compared with oil to be delivered in half a year has fallen from a six-year high in May at more than $4 a barrel to less than $1.50 last week. That is a signal that worries about tight supply have abated.
Even rising tensions in the Strait of Hormuz, where the United States and others are moving to protect tankers against Iran, have produced only modest gains. On Monday, Iran said it had captured spies working for US intelligence, a report US officials denied. That comes just after Friday's news that Iran had seized a British tanker.
Brent crude gained 1pc on Monday to hit $63 a barrel, still several dollars below the year's highs.
The International Energy Agency recently cut its expectation for global demand through 2019 and 2020 and said it may cut it again if the global economy - and especially China - show further weakness, while Saudi Arabian exports fell to an eighteen-month low in May.