A worker operates valves in an oil field. (Photographer: Nabil al-Jurani, File/AP Photo)

Crude Fades as Mideast Oil Supplies Dodge Escalating Conflict

(Bloomberg) -- Oil backed down from a two-month high as mounting political tensions and outright conflict in the world’s biggest crude-producing region failed to disrupt supplies.

Futures fell 0.5 percent on Monday in New York, holding on to most of last week’s 5.7 percent advance. Iranian-backed Houthi rebels launched a missile attack on Saudi Arabia on Sunday that inflicted casualties but left the kingdom’s oil infrastructure untouched. The attack occurred against the backdrop of Saudi Crown Prince Mohammed bin Salman’s visits with U.S. leaders who share his animus with Iran.

“A lot of geopolitical tensions got priced into the market last week,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. “It’s just wait and see. We’re at pretty lofty levels here still.”

Earlier in the session, the U.S. benchmark rose to $66.55 a barrel, the highest intraday price since Jan. 25, while London-traded Brent crude breached $71. Last week’s advance in New York was the biggest since July as President Donald Trump appointed John Bolton as national security adviser, signaling the U.S. may take a harder line on Iran. At the same time, risky asset classes faced headwinds as U.S. tariffs on imported metals fanned concerns about a global trade war.

“The overall picture here is that the oil price has held up quite well despite the setback we saw in equity markets last week,” said Jens Pedersen, senior analyst at Danske Bank A/S. “It will remove quite a bit of oil from the market if Iran’s exports are constrained again. We’ve been alert to this for the past six months or so at least, but it is popping up again.”

West Texas Intermediate crude for May delivery fell 33 cents to settle at $65.55 a barrel on the New York Mercantile Exchange.

Brent for May settlement traded 33 cents lower at close at $70.12 on the London-based ICE Futures Europe exchange.

Saudi Arabia said it intercepted seven ballistic missiles fired at Riyadh and other cities by Houthi forces in Yemen, marking an escalation from previous attacks. Various airports in the kingdom were targeted.

See this QuickTake for more on China’s first ever oil futures

Meanwhile, China began trading its first ever crude-futures contract on Monday as the world’s biggest oil buyer seeks greater power over pricing to challenge benchmarks in the U.S. and Europe. The yuan-denominated futures for September settlement were at 433.80 yuan ($69.16) a barrel on the Shanghai International Energy Exchange. The contracts were traded in greater volume than Brent during Asian hours.

Other oil-market news:

  • Gasoline futures for April delivery fell 1.1 percent to $2.0104 a gallon in New York.
  • Hedge funds ratcheted up bets that WTI crude would rise and slashed short-selling to the lowest since July 2014, according to the U.S. Commodity Futures Trading Commission.
  • The oil market is entering a new period of restraint, characterized by backwardation, cost deflation and consolidation, Goldman Sachs analysts wrote in a report.

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