Until last Thursday, the oil markets largely ignored the increasing tensions between the US and Iran, including the attacks on six oil tankers near the Strait of Hormuz. Then Iran downed an unmanned US surveillance drone, and oil prices soared on the possibility that a war which could potentially halt the 18 million b/d of oil exports was imminent. After a day of vacillation, Washington backed off a retaliatory attack on Iran, allowing the situation to cool. By week’s end US crude was up 10 percent closing at $57.43 in New York and $65.20, or about 5 percent, in London.
Brent futures dropped steadily for the first three days last week, falling to a low below $60 on Wednesday before the attack on two oil tankers just south of the Straits of Hormuz. Prices then rebounded to close the week at $62.01. New York futures performed similarly, closing out the week at $52.51. Many observers commented on the relatively mild market reaction to the tanker attacks. Considering that a third of the world’s seaborne exports (some 18 million b/d) pass through the straits, many expected to see prices move much higher. The US and the Saudis already are saying that Iran was responsible for the attacks, while Tehran denies any involvement.
US oil prices sank into bear market territory on Wednesday, falling more than 20 percent below the April peak. Traders were concerned that a 6.8-million-barrel build in US crude stocks indicated lower prices ahead. The markets rebounded on Thursday and Friday on news that a settlement in the Mexican border dispute was in the offing and that the OPEC+ production cut was likely to be extended for six months. London futures closed at $63.29 and New York at $53.99. London, however, is trading about $10 below where it was in the middle of May. As has been the case for months, the markets are caught between sagging economic growth, which would hurt demand, and production outages in Venezuela, Iran, and potentially in Libya.
Oil prices fell on Friday posting their biggest monthly drop in six months, after President Donald Trump threatened tariffs on imports from Mexico. Unless the Mexican government stops people from illegally crossing into the US, he would impose a 5 percent tariff on imports starting on June 10th that would increase monthly, up to 25 percent on Oct. 1. Following the threat Brent crude futures fell $2.38, or 3.6 percent, to settle at $64.49 a barrel and New York futures fell $3.09 to $53.50 a barrel, a 5.5 percent loss. Brent touched a session low of $64.37 a barrel, lowest since March 8. WTI hit $53.41 a barrel, weakest since Feb. 14. During May Brent futures posted an 11 percent slide and WTI 1 percent, their largest monthly losses since November.