Oil prices retreated further overnight, adding to sharp losses in the previous session as the market shifted focus toward rising US crude stocks and away from worries about the conflict between the United States and Iran.
Prices were moving back toward where they stood before a January 3 US drone strike killed a top Iranian general, prompting an Iranian rocket attack on Iraqi air bases hosting US forces. These events pushed crude to its highest in four months.
“The way the market gives a geopolitical risk premium and then takes it right back indicates that the market fundamentally isn’t very strong,” said Gene McGillian, director of market research at Tradition Energy in Stamford, Connecticut.
“A lot of participants in the market think that there’s a lot of oil around the world that consumption doesn’t take care of.”
After falling 4.1 per cent on Wednesday, Brent crude futures settled down 5.0 US cents at $US65.37 a barrel. West Texas Intermediate fell 7.0 US cents to $US 59.56 after sliding nearly 5.0 per cent the previous day.
During European trading hours Iranian media carried reports of military commanders speaking of further action aimed at expelling US troops from the region.
On Wednesday, US President Donald Trump stepped back from further military action, depressing oil prices and diverting attention to a surprise weekly build of 1.2 million barrels in US crude stockpiles.
The build, reported on Wednesday by the Energy Information Administration, shocked the market after analysts forecast a drop of 3.6 million barrels.
JPMorgan analysts maintained their forecast for Brent to average $US64.50 a barrel this year.
Top oil producers led by Saudi Arabia have agreed to reduce output by as much as 2.1 million barrels per day (bpd) through the first quarter of 2020.
“As geopolitical tensions appear to enter a new equilibrium … the overall supply conditions in the market tend to favour oil reverting lower,” Harry Tchilinguirian, oil strategist at BNP Paribas in London, told the Reuters Global Oil Forum.
“US crude oil production remains at a record 12.9 million bpd … it is not evident in our opinion that OPEC and its non-OPEC allies will fully implement the incremental supply cuts.”
Oil and gas ship owners are bracing for higher insurance bills due to US-Iranian tensions. This could add hundreds of thousands of dollars to shipping costs that would ultimately be passed on to fuel buyers, mostly in Asia.