Brent holds near $70 as Middle East tensions trump stock market slide

By Alex Longley on 3/26/2018

LONDON (Bloomberg) -- Brent held near $70/bbl after Saudi Arabia intercepted multiple ballistic missiles fired by Houthi forces in Yemen.

Futures in London were little changed, after earlier rising as much as 0.9% on speculation a worsening of the situation with Yemen will lead to supply disruptions in the Middle East. That countered sentiment from last week’s biggest drop in U.S. equity markets since January 2016 and rising number of rigs being put to work in America.

Oil has risen in the past month as political risks mount. Last week’s price increase was the biggest since July as President Donald Trump appointed John Bolton as national security adviser, signaling the U.S. may be turning to a harder line on OPEC producer Iran. At the same time, risky asset classes are also facing headwinds as concerns of a global trade war emerged with President Trump launching his import tariff regime.

“The overall picture here is that the oil price has held up quite well despite the setback we saw in equity markets last week,” says Jens Pedersen, senior analyst at Danske Bank. “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.”

Brent for May settlement traded $0.07 lower at $70.38/bbl on the London-based ICE Futures Europe exchange. The contract advanced $1.54 to $70.45 on Friday, the highest level since late January. The global benchmark traded at a $4.72 premium to WTI crude.

WTI for May delivery fell $0.26 to $65.62/bbl on the New York Mercantile Exchange, erasing an earlier $0.67 gain. Total volume traded was about 23% above the 100-day average.

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

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

Oil Market News

Hedge funds ratcheted up bets that WTI crude would rise and slashed short-selling to the lowest level since July 2014, according to the U.S. Commodity Futures Trading Commission. U.S. drillers added four working rigs last week, bringing the total to 804, the highest since March 2015, according to Baker Hughes data released Friday. That’s the eighth increase in nine weeks. China Petroleum & Chemical Corp., the world’s biggest refiner, will pay a record-high dividend as its massive fuels and chemical segments helped it post a nearly 10% increase in full-year profit.

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