Oil jumps by most this year as Trump warns Iran following drone attack

By Alex Nussbaum and Grant Smith on 6/20/2019

NEW YORK and LONDON (Bloomberg) -- Oil jumped the most this year after Iran shot down a U.S. drone and Donald Trump warned the Persian Gulf nation it made “a very big mistake,” stoking tensions in the epicenter of global crude production.

Futures climbed as much as 6.1% in New York, after the drone downing, which came a week after two oil tankers were attacked in the region. Crude was also boosted by a rally for equities after the U.S. Federal Reserve signaled it’s ready to lower interest rates for the first time since 2008.

After slipping into a bear market earlier this month, U.S. oil futures have surged almost 10% over the last week, as America and Saudi Arabia blamed Iran for a series of attacks while the Trump administration tightens sanctions on Iranian crude. Word that Trump and Chinese President Xi Jinping are set to resume trade talks at the G-20 summit in Japan have also improved sentiments about global growth.

“The Iran conflict isn’t going away any time soon,” said Michael Hiley, head of over-the-counter energy trading at LPS Futures in New York. “If you combine that with Trump and Xi making nice -- they are at least saying the right things -- then that’s certainly going to prop up” the oil market.

West Texas Intermediate for July delivery, which expires Thursday, rose as high as $57.02/bbl on the New York Mercantile Exchange, for its biggest intraday increase since Dec. 26. It was at $56.64 as of 11:23 a.m.

Brent for August settlement rose as much as 4.9%, the most since January, to $64.82/bbl on London’s ICE Futures Europe Exchange. The global benchmark crude traded at a $7.27 premium to WTI for the same month.

Iran said the craft it shot down was spying and stated it would defend its airspace and maritime boundaries “with all our might.” The U.S. said the Global Hawk drone was in international airspace when it was hit by an Iranian missile over the Strait of Hormuz, one of the world’s most critical chokepoints for oil shipments.

Further boosting prices, U.S. crude inventories fell for the first time in three weeks through June 14, according to government data released Wednesday. The 3.1-MMbbl decline was more than double the median analyst estimate. American oil production also dropped for a second week to 12.2 MMbpd.

Speculative traders who’d turned against crude recently are ready to pile back in, said LPS’ Hiley. “Certainly there are some buying bullets out there; there’s some dry powder,” he said. “You can’t be short in this market.”

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