At 07:27 GMT, Brent crude is down about 2.2% to just above $101.00, while May WTI is off over 3% to around $93.00. It’s a little too early to say that this represents a turning point in the market but it’s good news for traders betting on a top. It shows that other countries are willing to take chances at alleviating the current tightness in supply.
Fear Trade or Real Shortage?
Nonetheless, despite today’s pullback, prices remain elevated with Brent holding above $100.00 for several consecutive sessions. The price action this week suggests these high prices may be driven more by fear than actual shortages. The markets are lower this week despite Iran’s disruption to oil flows at the Strait of Hormuz. That said, Iraq’s southern oil production has reportedly dropped sharply due to regional instability, so this added supply has only slightly offset the bigger concerns.
The Strait of Hormuz Is Still Calling the Shots
While the early focus is on the additional supply, let’s not lose sight of the fact that the major factor supporting high oil prices is the continued disruption around the Strait of Hormuz. Iraq’s oil output in the South, near the Strait has dropped about 70%, according to Reuters, so it makes sense to try to get oil out of the country up north.
The war developments overnight didn’t do anything to suggest the end is near either. In fact, tensions may have escalated further after Iran confirmed the death of a top security official in an Israeli attack. Additionally, Iran once again rejected calls for de-escalation. Iran appears to be digging in for the long-haul, even as military activity from the U.S. included the targeting of Iranian positions near the Strait of Hormuz to protect shipping routes.
API Numbers Add to the Selling Pressure
Sticking with the supply side, the American Petroleum Institute (API), announced late Tuesday, a sharp increase of over 6 million barrels in stockpiles, well above expectations. The cause is either weaker demand or rising supply, but does it really matter now. Nonetheless, it did contribute a little to today’s weakness.
