Oil Falls After Weekly Losses as Traders Focus on Mideast Risk

(Bloomberg) — Oil fell as some of the premium from tensions in the Middle East continued to fade from the market.

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Brent slipped near $86 a barrel after posting the biggest drop since early February last week. Gold also fell, in a sign that haven demand is easing.

An uneasy calm has descended over the market after prices whipsawed on Friday, with Iran downplaying Israel’s response to the Islamic Republic’s unprecedented drone and missile strike a week earlier. On Monday, addressing the tensions Tehran said Israel has received the “necessary response at this stage.”

The US House has passed new sanctions on Iran’s oil sector following the hostilities, putting the measure on track to pass the Senate in days. The country also approved fresh funding for Ukraine in its war against Russia.

Read more: US Unlikely to Enforce Iran Sanctions in Election Year: Analyst

Oil is around 12% higher this year due to the geopolitical tensions and OPEC+’s supply cuts that have tightened the market. Investors will focus on a slew of US economic data this week, including the Federal Reserve’s preferred measured of inflation, which will give more clues on the path for monetary policy.

“The market has been expecting a potential escalation, we haven’t seen it,” Amrita Sen, co-founder and director of research at Energy Aspects said in a Bloomberg TV interview. “It’s been quite calibrated, measured on both sides. That’s why prices have been coming off a little bit. We’re not expecting massive downside but we are expecting small downside in prices, physically this is the weakest period for oil anyway.”

Still, money managers are the most bullish on Brent since March 2021 as they snap up contracts to profit from any spike higher amid heightened tensions. Other markets are also signaling bullishness, with oil call options — which profit when prices rise — posting a second consecutive week of record volumes last week.

Earnings from the world’s largest oil majors including TotalEnergies SE, Chevron Corp. and Exxon Mobil Corp. are also due this week, as well as Asian companies Reliance Industries Ltd. and Cnooc Ltd. Big Oil’s production growth will be in the spotlight this quarter as earnings stabilize.

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–With assistance from Tom Mackenzie.

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