The Philadelphia Energy Solutions oil refinery. Picture: REUTERS
The Philadelphia Energy Solutions oil refinery. Picture: REUTERS

Singapore — Oil prices fell more than 1% on Tuesday as investors reconsidered the likelihood of Middle East supply disruptions in the wake of the US killing a top Iranian military commander.

Brent crude fell as much as 1.5% to $67.86 a barrel and was at $68.09, down 82c, at 3.25am GMT. US West Texas Intermediate (WTI) crude futures was at $62.53, down 74c, after earlier dropping 1.5% to an intraday low of $62.30.

Prices surged during the previous two sessions, with Brent reaching its highest since September, while WTI rose to the most since April. The gains followed fears of escalating conflict and potential Middle East supply disruptions after the January 3 drone strike in Baghdad that killed Iran’s Qassem Soleimani. But some analysts have tempered expectations for a widespread conflict.

“The market is clearly worried about the potential for supply disruption but there is no obvious path forward from here,” said Lachlan Shaw, head of commodity research at National Australia Bank.

“It’s all a matter of scenarios that may affect oil production or not, so the market seems to have recalibrated in the last 24 to 36 hours on some of those likelihoods.”

Iran would need foreign currency earnings from continued oil exports and it would be counter to its interest if it tried to block the Straits of Hormuz, he said. About 20% of the world’s oil passes the Middle East waterway, which borders Iran.

Consultancy Eurasia Group said Iran is likely to focus more narrowly on US military targets instead of energy targets.

“That’s not to say it won’t continue low-level harassment of commercial shipping or regional energy infrastructure but these activities will not be severe,” it said.

Prices were also supported by higher compliance among the Organisation of the Petroleum Exporting Countries (Opec) on meeting production quota curbs aimed at reducing supply.

Opec members pumped 29.50-million barrels a day in December, down 50,000 barrels from November’s revised figure, according to a Reuters survey.

US crude oil stockpiles are likely to have dropped for a fourth week in a row as exports ramped up, a Reuters poll showed on Monday. Six analysts estimated, on average, that crude stocks fell by 4.1-million barrels in the week to January 3.

Inventories for refined products were expected to rise with fuel stocks set to gain for the ninth straight week, according to the poll.

Even before Soleimani’s death, investors were increasing their bullish WTI holdings, with money managers raising their net-long positions in the week to December 31, the Commodity Futures Trading Commission said on Monday.

Reuters