Oil trades near $54 as Iran tension offsets U.S. shale drilling boom

By Rakteem Katakey and Ben Sharples on 2/6/2017

LONDON and HONG KONG (Bloomberg) -- Oil traded near $54/bbl as increased tension between Iran and the U.S. countered expectations of rising American production.

Futures fell 0.4% in New York, following three weekly gains. U.S. President Donald Trump’s administration imposed new sanctions on Iran and warned the Islamic Republic that it was “playing with fire” by testing missiles. U.S. drillers boosted the rig count by 17 to 583, the most since October 2015, according to Baker Hughes Inc.

U.S. crude futures have fluctuated above $50 since the Organization of Petroleum Exporting Countries and 11 other nations started curbing output Jan. 1. While OPEC members have implemented most of their cuts and Russia says its own reductions are ahead of schedule, U.S. production has edged higher as drillers put more rigs to work. Rising tensions with Iran aren’t yet seen threatening a broader nuclear deal that lifted sanctions on the country’s oil exports.

“Geopolitical risk and the oil nations’ production cuts give a floor to prices,” said Giovanni Staunovo, an analyst at UBS Group AG. “Fears of a too strong U.S. supply response and U.S. oil inventories are limiting the upside at present. The next trigger for prices will come from the production cuts leading to inventory draw-downs.”

West Texas Intermediate for March delivery was at $53.62/bbl on the New York Mercantile Exchange, down 21 cents, at 1:44 p.m. in London. Total volume traded was about 34% below the 100-day average. The contract gained 29 cents, or 0.5%, to $53.83 on Friday.

Iran sanctions

Brent for April settlement fell 33 cents to $56.48/bbl on the London-based ICE Futures Europe exchange. Prices advanced 2.3% last week. The global benchmark crude traded at a premium of $2.25 to April WTI.

Iran carried out further missile tests during an annual military exercise on Saturday, a day after President Trump imposed fresh sanctions on a raft of individuals and companies in response to the country test-firing a ballistic rocket. While the missile tests didn’t contravene the nuclear accord signed in 2015, they are seen by some as going against a United Nations Security Council resolution that enshrines the agreement.

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