Brent Oil Retreats as Trump Tweets, Sanctions Muddy Iran Policy

(Bloomberg) -- Oil investors delivered a split decision Monday that reflected the muddy outlook for the U.S.-Iran confrontation, with global benchmark Brent crude retreating while U.S. futures gained for the third straight day.

Brent closed down 0.5% while U.S. West Texas Intermediate crude added almost 1%. Days after abruptly aborting a strike on Iran, President Donald Trump in a tweet asked “why are we protecting" the Strait of Hormuz, the critical Persian Gulf waterway. Yet he also imposed new sanctions on Iran’s supreme leader, Ayatollah Ali Khamenei, and eight military commanders.

Brent fell in part due to traders downgrading the chances of an immediate confrontation, said Bill O’Grady, chief market strategist at Confluence Investment Management LLC in St. Louis. U.S. barrels, nonetheless, may look more attractive as tensions simmer, he said; government data last week also suggested U.S. demand is on the rise, O’Grady said.

“Between higher exports and hopes for inventory contractions in the U.S., being long on WTI might make some sense," he said.

West Texas Intermediate for August delivery rose 47 cents, or 0.8%, to $57.90 a barrel at the close of official trading on the New York Mercantile Exchange. Brent for August settlement slipped 34 cents to $64.86 on London’s ICE Futures Europe Exchange.

Russia added another wild card for oil traders on Monday, with Energy Minister Alexander Novak declining to say whether his nation supported an extension of production cuts with OPEC that many investors see as crucial to stabilizing crude markets. A decision will have to wait until after this week’s G-20 summit of major world economies, he told reporters in St. Petersburg.

WTI completed its best weekly gain in more than two years on Friday, adding 9.4%, after Iran shot down an American spy drone, and Monday’s decline may have included investors selling out of the market to lock in profits, said Marshall Steeves, an energy markets analyst at Informa Economics in New York.

Traders are also awaiting two key events over the next week. Trump is set to meet with Chinese President Xi Jinping at the G-20 summit in Japan, raising hopes they can restart stalled trade talks. Days later, OPEC, Russia and other top suppliers will gather in Vienna.

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“It’s unclear what the next step is in the Persian Gulf," Steeves said. “We don’t know if there is going to be another attack, what the duration of the hostilities will be. There are a lot of unknowns."

--With assistance from James Thornhill and Saket Sundria.

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;Grant Smith in London at gsmith52@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Reg Gale, Carlos Caminada

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