Picture: 123RF/PAVEL IGNATOV
Picture: 123RF/PAVEL IGNATOV

Tokyo/London — Oil prices were up on Wednesday but well below peaks hit in frenzied early trading after a rocket attack by Iran on American forces in Iraq raised the spectre of a spiraling Middle East conflict and disruption to crude flows.

Prices gave up most of their early gains as analysts said market tension could ease as long as oil production facilities remain unaffected by attacks. Tweets by US President Donald Trump and Iran’s foreign minister also appeared to signal a period of calm — for now.

Brent crude futures were up 26c, or 0.38%, to $68.53 by about 9.08am GMT, after earlier rising to their highest level since mid-September 2019 at $71.75. West Texas Intermediate (WTI) crude futures gained 10c, or 0.16%, to $62.80 a barrel. It earlier hit $65.85, the highest since late April last year.

Iran’s missile attack on US-led forces in Iraq came early on Wednesday, hours after the funeral of Qassem Soleimani, the commander of the country’s elite Quds Force killed in a US drone stroke on January 3.

Tehran fired more than a dozen ballistic missiles from Iranian territory against at least two Iraqi military bases hosting US-led coalition personnel, the US military said on Tuesday. Stock, currency and gold markets were also roiled by the attacks.

Trump said in a tweet that an assessment of casualties and damage from the strikes was underway and that he would make a statement on Wednesday morning US time. “All is well!” he tweeted.

Warwick Business School’s David Elmes spoke to Business Day TV about the implications of US-Iran tensions for the oil market.

‘Temporary phenomenon’

Early indications suggested no US casualties, one source told Reuters, although other officials declined to comment. Iranian state television said 80 “American terrorists” had been killed and US helicopters and military equipment damaged.

Iraq, Germany, Denmark and Norway said none of their troops was killed or injured.

Executives and analysts said oil markets remain focused for now on the targets in the Wednesday attack being military, rather than oil industry facilities.

“I think the surge in oil markets will be a temporary phenomenon ... US shale oil players will boost output if oil prices remain stronger,” said Toshiaki Kitamura, the chair of Japanese oil and gas producer Inpex, speaking to Reuters at an industry gathering.

Still, he said, “There is no real reason to push down oil prices, either. So I believe oil prices will likely hover between $60-$70 a barrel this year.”

In a research note, Goldman Sachs maintained its three-month view for US oil at $63 a barrel. “The recent rally in oil prices is unsustainable without actual supply disruption,” the bank said.

Opec response

Oil cartel Opec will respond to any possible oil shortages if necessary but it also has “limitations”, the United Arab Emirates energy minister said on Wednesday. Suhail al-Mazrouei also said he sees no immediate risk of supplies through the important Strait of Hormuz being blocked.

In Wednesday’s attack, Iranian news agency Mehr said Iran’s Islamic Revolutionary Guard had targeted the bases in Iraq that hosted US forces. Tehran has vowed retaliation for the killing of military commander Soleimani.

“Iran took and concluded proportionate measures in self-defence,” Iranian foreign minister Jawad Zarif said on Twitter. “We do not seek escalation or war, but will defend ourselves against any aggression.”

Reuters