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Saturday, January 11, 2020

Oil Struggles to Restart Rally as U.S.-Iran Conflict Cools

© Reuters.  © Reuters.

Investing.com – The cooling of the U.S.-Iran conflict has dramatically reduced the risk pricing in oil. Even China’s assurance on Thursday that its trade deal with Washington was on couldn’t restart the crude rally, with U.S. benchmark prices trading beneath $60 support.

West Texas Intermediate, the U.S. crude benchmark, settled down 5 cents at $59.56 per barrel. This was despite media reports out of Beijing that Vice Premier Liu He will travel to Washington between Jan. 13 and 15 to sign a phase one deal with the White House, just as U.S. President Donald Trump had said.

Brent, the global benchmark for crude, was up just a penny at $65.45 a barrel by 3:46 PM ET (20:46 GMT).

Just weeks ago, a mere tweet from Trump about progress on the China deal would have sent both the U.S. stock and oil markets rallying.

Shares on Wall Street did hit record highs on Thursday on the China news. But crude continued to struggle after WTI’s 5% slump and Brent’s 3.5% slide in the previous session, the worst since the start of 2020. Those drops came after Trump refrained making a military response to Tehran for its rocket attacks on U.S.-Iraqi airbases as retaliation to last week’s U.S. killing of Iranian General Qassem Soleimani.

Prior to Trump’s decision on Iran, WTI hit an April high of $65.65 on Wednesday, while Brent surged to near four-month highs of $71.28 as traders speculated on an all-out U.S.-Iran war.

But as tensions from the conflict eased, adding to the weight on the market was Wednesday’s weekly U.S. oil inventory data showing a surprise rise in crude stockpiles and huge builds in fuel.

“The market is quiet today as yesterday’s thrashing took much of the risk premium out,” said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C.

Shelton said crude markets appeared to have “trapped length” in them and more selling could follow.

“There is a lack of shorts in the market as well to overcome negative flows,” he added. “Personally, I still believe there should be some additional risk premium in the market. But I fear that there will be more selling than buying as momentum has switched. No news may be bad news in this case.”

In Wednesday’s inventory data, the Energy Information Administration said crude stockpiles rose by 1.2 million barrels for the week ended Jan. 3, versus market expectations for a decline of 3.6 million barrels.

Gasoline inventories soared by 9.1 million barrels, compared with expectations for a rise of 2.7 million barrels. Distillate stockpiles climbed by 5.3 million barrels, versus forecasts for a build of 3.9 million barrels.

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