Abu Dhabi, UAEWednesday 22 January 2020

Oil drops as threat of war in Middle East recedes

The oversupply in the market is sizeable, according to analysts

Oil slipped towards $65 a barrel on Friday. AP
Oil slipped towards $65 a barrel on Friday. AP

Oil slipped towards $65 (Dh238.71) a barrel on Friday as the threat of war in the Middle East receded and investors focused on rising US inventories and other signs of ample supply.

Crude is now below where it was before a US drone strike killed Iranian general Qassem Suleimani on January 3. Iran responded with a missile attack on Iraqi air bases hosting US forces this week that left no casualties.

"Immediate escalation has been avoided," said Olivier Jakob, oil analyst at Petromatrix. "There has been some de-escalation, but the return of risk is still there."

Brent crude, the global benchmark, was down 0.08 per cent at $65.32 by 3:15 pm UAE time, and was heading for its first weekly decline in six weeks, down about 5 per cent. US West Texas Intermediate crude was 0.17 per cent lower at $59.46.

"Tensions between the US and Iran appear to have eased almost as quickly as they escalated," said Craig Erlam, an analyst at Oanda, a brokerage firm.

"Brent is trading back around $65 and is looking pretty stable at this point. Barring any further escalation in the Middle East, we could see oil prices stabilise around these levels in the near term."

With Middle East tensions easing for now, investors are focusing on areas away from the conflict.

Crude inventories in the United States rose last week by 1.2 million barrels, the US Energy Information Administration said on Wednesday.

That compared with analysts' expectations in a Reuters poll for a 3.6m barrel drop.

"There's too much supply out there," a Japan-based based oil executive told Reuters.

In a bid to tackle any build-up of excess supply, the Organisation of the Petroleum Exporting Countries plus allies including Russia are embarking on a further cut in production as of January 1 this year.

Industry surveys, including from Reuters, showed that Opec output declined in December ahead of the new pact. Still, production remains higher than the forecast demand for early 2020, according to some analysts.

"The oversupply on the oil market is sizeable," said Carsten Fritsch, analyst at Commerzbank.

Updated: January 10, 2020 04:07 PM

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