Oil prices on Tuesday surrendered some gains made over the previous days as investors reconsidered the likelihood of immediate supply disruptions in the Middle East after the United States killed a top Iranian military commander.
Brent crude was down 53 cents or 0.8 percent at $68.38 a barrel at 1333 GMT, while US West Texas Intermediate (WTI) crude was at $62.81, down 46 cents or 0.7 percent.
Prices surged during the previous two sessions, with Brent reaching its highest since September, while WTI rose to its strongest since April.
The gains followed fears of escalating conflict and potential Middle East supply disruptions after the January 3 drone strike in Baghdad that killed Qassem Soleimani, head of Iran’s elite Quds Force. Iran has vowed a harsh revenge.
“We still believe in the absence of retaliation or disruptions that oil prices will trend lower over the course of the first quarter of 2020, with the market remaining well supplied over the first half,” ING analysts said in a note.
Consultancy Eurasia Group said Iran is likely to focus more narrowly on US military targets instead of energy targets.
“That’s not to say it won’t continue low-level harassment of commercial shipping or regional energy infrastructure, but these activities will not be severe,” it added.
“The closure of the Strait of Hormuz, a key chokepoint of global oil flows, remains a very unlikely event.”
However, the United States Maritime Administration website renewed its warning about threats to US commercial vessels from Iran and its proxies in the Gulf and surrounding area.
Prices also fell despite higher compliance among the Organization of the Petroleum Exporting Countries (OPEC) on meeting production quota curbs aimed at reducing supply.
OPEC members pumped 29.50 million barrels per day (bpd) last month, down 50,000 bpd from November’s revised figure, according to a Reuters survey published on Monday.
US crude oil stockpiles likely dropped for a fourth week last week as exports ramped up, although refined products stocks were expected to have risen, a Reuters poll showed on Monday.
Six analysts estimated on average that crude stocks had fallen by 4.1 million barrels in the week to January 3.
Even before Soleimani’s death, investors were increasing their bullish WTI holdings, with money managers raising their net long positions in the week to December 31, the Commodity Futures Trading Commission said on Monday.