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Oil Retreats From Three-Year High as Syria Tensions Simmer

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04/16/2018 | 10:31 am

By Christopher Alessi

LONDON -- Oil prices retreated Monday from a three-year high reached at the end of last week, as geopolitical risks to supply receded.

Brent crude, the global benchmark, was down 1.4%, at $71.58 a barrel, on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 1.3%, at $66.49 a barrel.

WTI on Friday had closed at $67.39 a barrel -- its highest level since December 2014 -- ahead of U.S.-led military strikes in Syria. But prices reversed course Monday after relatively restrained airstrikes didn't appear to escalate tensions with the Syrian regime and its allies such as Russia.

"We can understand why the oil price has tended to fall rather than gain today in response to the West's military strike against Syria -- after all, the tough response announced by Russia has failed to materialize," analysts at Commerzbank argued. "Most importantly, however, the escalation of the situation had already been priced in beforehand," they added.

Still, geopolitical risk emanating from the Middle East has "by no means evaporated, and could soon ignite a renewed price rally" if the U.S. were to move to reimpose economic sanctions on Iran, the analysts wrote in a note Monday.

Stephen Brennock, an analyst at brokerage PVM Oil Associates Ltd., said Monday that "underpinning this [price] retreat is a consensus that there will be no further occurrences of U.S. military action in Syria." But, he added, "as much as the geopolitical risk premium may be taking a breather, oil prices will continue to be subjected to Trump's whims for the foreseeable future."

The flurry of geopolitical activity came on the heels of a warning Friday from the International Energy Agency that global demand for oil could be dented by escalating trade tensions between the U.S. and China. The Trump administration's planned tariffs on Chinese imports and retaliatory measures announced by Beijing would weigh on the global economy, with "strong consequences for oil demand," the agency said.

However, the IEA reiterated its global demand growth estimate of 1.5 million barrels a day for 2018.

Oil market observers are looking ahead to weekly data Wednesday on U.S. petroleum inventory levels from the Energy Information Administration.

Among refined products, Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- was up 0.5%, at $2.07 a gallon. ICE gas oil, a benchmark for diesel fuel, changed hands at $635.25 a metric ton, down 1.13% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

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