Oil erases all gains made since Saudi attacks as tensions thaw

By Heesu Lee and Alex Longley on 9/27/2019

SEOUL (Bloomberg) - Oil fell as Saudi Arabia moved to impose a partial cease-fire in Yemen, bringing hope of easing tensions in the Middle East.

Futures declined as much as 2.9% in New York, erasing all the gains made since attacks on Saudi Arabia earlier this month. The Saudis have agreed to a limited cease-fire in several areas of Yemen including the capital Sana’a, which is controlled by Iran-backed Houthi rebels, a Yemeni government official said.

Prices had already been falling this week as Saudi Arabia ramped up oil output following the Sept. 14 attacks on its energy infrastructure. The kingdom is pumping more than 8 million barrels a day after bringing back production at Khurais and Abqaiq, according to people familiar with the matter. The price drop also reflects a deepening manufacturing slump in Germany, more signs of economic weakness in China and rising crude stockpiles in the U.S.

West Texas Intermediate for November delivery declined $0.85 to $55.56 a barrel on the New York Mercantile Exchange at 9:32 a.m. local time. It earlier slumped to as low as $54.75.

Brent for the same month dropped $1.23, or 2%, to $61.51 a barrel on the ICE Futures Europe Exchange, and traded at a $6.08 premium to WTI.

Following a cease-fire, “we should return to $60 as we are back to focusing only on growth and demand worries,” said Ole Hansen, head of commodities strategy at Saxo Bank.

The partial cease-fire will likely help to cool political tensions in the region, after the attacks on Saudi infrastructure knocked out 5% of global production and prompted a U.S. plan to send more troops to the region. Yet President Donald Trump on Friday responded to speculation on the potential removal of Iranian sanctions, saying he told the country “No!” to lifting penalties.

The U.S., Saudi Arabia and major European powers have all blamed Iran for the oil attacks, though Tehran has denied the allegations. Houthi rebels have claimed responsibility.

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