Oil prices decline as Middle East tensions fade

Oil ended the first full week of 2020 with the steepest loss since July as geopolitical threats to some of the world’s most important supplies fizzled.

Futures settled at a onemonth low in New York on Friday to cap a volatile week that saw crude soar and then crash as the US and Iran teetered on the brink of all-out conflict. Ultimately, prices finished the week down more than 6 per cent.

“Prices are still sliding because of the easing in tensions in the Middle East,” said Michael Loewen, director of commodity

strategy at Scotiabank. “That’s draining the supply risk premium

that was injected into the market starting with the killing of the

Iranian general.”

Against the backdrop of waning Middle East tensions, US crude inventories expanded by 1.16mn barrels last week, confounding analysts and traders who’d expected a decline. With gasoline stockpiles at a tenmonth high, supply concerns in the world’s biggest economy were assuaged.

West Texas Intermediate crude for February delivery settled down 52 cents to US$59.04 a barrel on the New York Mercantile Exchange. Brent futures for March settlement declined 39 cents to US$64.98 on the ICE Futures Europe exchange. The global benchmark lost more than 5 per cent last week.

In addition to ample American supplies, members of the Organization of Petroleum Exporting Countries are sitting on huge amounts of spare capacity after cutting production for most of the past three years.

‘Although the threat of outright war has receded, the industry remains on edge, expecting disruptions like shipping incidents or attacks on oil facilities on par with events last year,’ Eurasia Group analysts Robert Johnston and Henning Gloystein said in a note.