Oil jumps as Iran shoots down US drone in Gulf

The shooting down of a US drone has raised fears of a military confrontation between Tehran and Washington. (Reuters)
Updated 20 June 2019
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Oil jumps as Iran shoots down US drone in Gulf

  • The drone was downed in international airspace over the Strait of Hormuz by an Iranian surface-to-air missile
  • Also propelling oil higher was a decline in US crude inventories and the prospect of prolonged supply restraint by producer group OPEC and its allies

LONDON: Oil rose more than 3 percent toward $64 a barrel on Thursday after Iran shot down a US military drone, raising fears of a military confrontation between Tehran and Washington.
Expectations that the US Federal Reserve could cut interest rates at its next meeting, stimulating growth in the world’s largest oil-consuming country, and a drop in US crude inventories also supported prices.
US crude was up 5.8 percent at $59.91 per barrel, a three-week high. Brent crude was up 4.3 percent at $64.52 per barrel, also a three-week high, having earlier gained 3.4 percent to $63.93. US West Texas Intermediate crude rose $2.33 to $56.09.
“The risk of a military conflict in the Middle East has risen because of a ratcheting up of tensions between the United States and Iran,” said Abhishek Kumar of Interfax Energy in London. “Elsewhere, the US Federal Reserve has signaled its willingness to loosen monetary policy over the coming months, which is being perceived as favorable to oil demand.”
The drone was downed in international airspace over the Strait of Hormuz by an Iranian surface-to-air missile, a US official said. Iran’s Revolutionary Guards said the drone was flying over southern Iran. Tension has been rising in the Middle East, home to over a fifth of the world’s oil output, after attacks on two tankers near the Strait of Hormuz, a chokepoint for oil supplies. Washington blamed Tehran for the tanker attacks. Iran denied any role.
Concern about slowing economic growth and a US-China trade dispute has pulled oil lower in recent weeks. Brent reached a 2019 high of $75 in April.
The prospect of further rate cuts could prove the more significant factor for oil, said Petromatrix analyst Olivier Jakob, should Iran-US tension not escalate.
“The Fed and the cutting of rates is something that will provide more substantial support,” he said.
Also propelling oil higher on Thursday was a decline in US crude inventories and the prospect of prolonged supply restraint by producer group OPEC and its allies.
US crude stocks fell by 3.1 million barrels last week, more than analysts expected, the Energy Information Administration said on Wednesday.
OPEC and allies including Russia agreed this week to meet on July 1-2, ending a month of wrangling about the timing.
The coalition known as OPEC+ looks set to extend a deal on cutting 1.2 million barrels per day of production. The deal expires at the end of June.


‘Huge increase’ in crude prices not expected: IEA executive director

Updated 19 July 2019
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‘Huge increase’ in crude prices not expected: IEA executive director

  • The International Energy Agency is revising its 2019 global oil demand growth forecast down to 1.1 million barrels per day
  • IEA’s Fatih Birol: Serious political tensions could impact market dynamics

NEW DELHI: The International Energy Agency (IEA) doesn’t expect oil prices to rise significantly because demand is slowing and there is a glut in global crude markets, its executive director said on Friday.
“Prices are determined by the markets ... If we see the market today, we see that the demand is slowing down considerably,” said IEA’s Fatih Birol, in public comments made during a two-day energy conference in New Delhi.
The IEA is revising its 2019 global oil demand growth forecast down to 1.1 million barrels per day (bpd) and may cut it again if the global economy and especially China shows further weakness, Birol told Reuters in an interview on Thursday.
Last year, the IEA predicted that 2019 oil demand would grow by 1.5 million bpd. But in June this year it cut the growth forecast to 1.2 million bpd.
“Substantial amount of oil is coming from the United States, about 1.8 million barrels per day, plus oil from Iraq, Brazil and Libya,” Birol said.
Under normal circumstances, he said, he doesn’t expect a “huge increase” in crude oil prices. But Birol warned serious political tensions could yet impact market dynamics.
Crude oil prices rose nearly 2 percent on Friday after a US Navy ship destroyed an Iranian drone in the Strait of Hormuz, a major chokepoint for global crude flows.
Referring to India, Birol stressed the country could cut its imports, amid rising oil demand in the country, by increasing domestic local oil and gas production.
Prime Minister Narendra Modi had set a target in 2015 to cut India’s dependence on oil imports to two-thirds of consumption by 2022, and half by 2030. But rising demand and low domestic production have pushed imports to 84 percent of total needs in the last five years, government data shows.
Meanwhile, the IEA doesn’t expect a global push toward environmentally friendly electric vehicles can dent crude demand significantly, Birol said, as the main driver of crude demand globally has been petrochemicals, not cars.
He said the impact of a serious electric vehicle adoption push by the Indian government would not be felt immediately.