Oil falls but prices still elevated

TOKYO (Reuters) — Oil fell more than 1 percent on Tuesday as the market hung on tenterhooks over the threat of a military response to attacks on Saudi Arabian crude oil facilities that cut the kingdom’s output in half and sent prices soaring by the most in decades.

The Saturday attack heightened uncertainty in a market that had become relatively subdued in recent months due to slowing global growth as the U.S.-China trade war rages. Saudi Arabia is the world’s top oil exporter and has been the supplier of last resort for decades.

Brent crude was down 73 cents, or 1.1 percent, at $68.29 a barrel by 0405 GMT, and West Texas Intermediate was down 87 cents, or 1.4 percent, at $62.03 a barrel.

Prices surged nearly 20 percent in intraday trading on Monday in response to the attacks, the biggest jump in almost 30 years, before closing around 15 percent higher. Equities and other markets were also pressured on Tuesday.

“The question is how long it takes for the supply to get back online,” said Esty Dwek, head of global market strategy at Natixis Investment Managers.

“However, the (geopolitical) risk premium … which has been basically ignored by markets in favour of growth worries in recent months, is likely to be priced in going forward,” she said.

A gauge of oil-market volatility on Monday rose to the highest level since December of last year, and trading activity showed investors expect higher prices in coming months.