Crude near $71 as geopolitical conflicts seen at bay—for now

Futures slipped back in New York on Thursday after earlier advancing as much as 1.1%. Geopolitical events have driven the recent price rally, with reports of Israel saying it struck most of Iran’s military facilities inside Syria only adding to tensions over the Iran nuclear accord break-up. Yet, Saudi Arabia said it will work with OPEC and non-OPEC producers to mitigate any impact of a supply shortage due to Iranian sanctions, taking away the risk of supplies tightening too much.

“The concerns surrounding events unfolding in Israel and Syria, with Iran, put a little spark in the market, but we need to see further escalation to really drive it,” Gene McGillian, a market research manager at Tradition Energy in Stamford, Connecticut, said. It’s also clear there is some “momentary profit-taking.”

Crude has rallied 1.7% so far this week as Trump announced the U.S. will exit the Iran accord and re-instate sanctions. Questions remain over how much oil will be taken off the market as a result. Fitch sees the U.S. move on Iran further boosting Middle East risks. At the same time, UBS Group AG sees Brent crude trading at $80/bbl in six months and Bank of America Merrill Lynch said oil may rally to $100 next year.

West Texas Intermediate crude for June delivery fell 21 cents to $70.93/bbl at 10:57 a.m. on the New York Mercantile Exchange. Total volume traded Thursday was about 19% above the 100-day average.

Brent for July settlement slid 29 cents to $76.92/bbl on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $6.05 premium to July WTI.

Also placing a cap on prices rallying too high is production out of the U.S. The latest data from the Energy Information Administration on Wednesday showed that domestic crude output rose to a fresh record high of 10.7 MMbpd last week.