Oil dropped after a second consecutive weekly gain in US crude inventories overshadowed a CNN report that Israel is preparing for a potential strike on Iranian nuclear sites.
West Texas Intermediate fell 0.7% to settle below $62 a barrel after the government reported US crude inventories climbed to the highest since July and gasoline demand fell. A lackluster Treasury sale also weighed on broader markets, adding to the declines. Brent futures slid below $65.
Oil has been volatile since last week on mixed headlines about the fate of Iran-US nuclear talks, which could pave the way for more barrels to return to a market that’s expected to be oversupplied later in the year. An attack by Israel would hinder any progress in those negotiations and add to unrest in the Middle East, which supplies about a third of the world’s crude.
It wasn’t clear whether a final decision on any attack had been made, CNN said, citing US intelligence and unidentified American officials.
“Either the impact on the oil market in case of an attack is assumed to be low, or the probability for an attack is assumed to be low,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. Wednesday’s gain “is not much when we are talking bombs in the Middle East major oil producing region.”
Geopolitical concerns have for now overshadowed expectations of looser balances heading into the second half of the year, as OPEC and its allies bring back barrels to the market. Still, WTI could tumble to as low as $40 a barrel if sanctions on the Islamic Republic’s oil exports are lifted, according to Bloomberg Intelligence.
Iran has been able to keep exporting crude in spite of increasing sanctions by the US and allies including the UK and Europe. Tehran has even managed to boost supply recently, according to Goldman Sachs Group Inc.
“Iran has increased its supply by about a million barrels a day over the last couple of years,” Samantha Dart, Goldman’s co-head of global commodities research, said on Bloomberg Television. “If you remove a million barrels a day from Iran, this could represent an upside of about $8 a barrel to the crude oil price.”
Oil Prices
WTI for July delivery fell 0.7% to $61.57 a barrel in New York.
Brent for July settlement slipped 0.7% to $64.91 a barrel.
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