Oil prices fell sharply in early Asian trade on Thursday, with both major crude benchmarks retreating by around 3 percent as markets reacted to comments from U.S. President Donald Trump that appeared to lessen the likelihood of an imminent U.S. military strike on Iran.
At the time of writing, WTI crude was down $1.86, or 3.00 percent, at $60.16 per barrel, while Brent crude stood at $64.57, down $1.95, or 2.93 percent on the day. This drop in prices represents a significant reversal from earlier in the week when geopolitical risk sent prices climbing aggressively.
Trump’s claim that he had been told that killings of protesters in Iran were subsiding and that there were no plans for large-scale executions signalled a lower probability of direct U.S. military action against Tehran. This reduced the geopolitical risk premium that had been supporting oil prices.
Later, in an exclusive interview with Reuters, the president expressed doubts over whether Reza Pahlavi, the son of the former shah of Iran, would be able to garner support in the country.
With the geopolitical risk premium subsiding somewhat, traders could focus on bearish fundamentals, with U.S. crude inventories climbing by more than analysts expected last week. It is also looking increasingly likely that Venezuela’s oil supply is set to return to markets, with the U.S. completing its first sale of Venezuelan oil on Wednesday.
While markets may have cooled somewhat on the back of President Trump’s comments, protests in Iran have persisted, and there remains plenty of uncertainty over what might come next.
By Charles Kennedy for Oilprice.com
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