Brent oil found resistance at the $66.78 level after fears of an imminent US strike on Iran faded.
UKOIL – Daily Chart
UKOIL fell 2.86% after hitting resistance, which could end the recent rally in the near term. There is still a chance of higher prices this year, and traders may be building the foundation for a recovery.
Oil dropped after US President Donald Trump softened his tone on imminent military action against Iran. The Brent North Sea crude and West Texas benchmarks were lower after Trump said he would “watch it and see”.
He added that he had heard reports that recent killings of protesters there had stopped. Crude had been surging after comments that the US was coming to help the Iranian people.
“Iran’s at the nerve centre of the global oil market,” said Ben Cahill, the director for energy at the University of Texas at Austin.
“If there’s a physical supply disruption, the market will react in a big way”.
Iran produces more than 3 million barrels per day and exports around 1.5 million, but it also holds the third-largest reserves, behind Venezuela and Saudi Arabia. The country’s oil is also more appealing to buyers because it is easier to refine than Venezuela’s, which has a heavier weight.
Iran’s control over the Strait of Hormuz shipping route is another issue, as around 25% of seaborne oil passes through each year.
Another headwind for oil prices has been rising US inventories. Crude inventories rose by 3.4 million barrels during the week ending January 14. Commercial stockpiles of 422.4 million barrels are 3% below the five-year average for the current time of year.
