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Crude oil futures fell Monday for the first time after three straight daily gains, as investors shrugged off the risk of further escalation of warfare in the Middle East even after three U.S. service members were killed in a drone attack by Iran-backed Houthi terrorists on a base in Jordan.
Oil prices popped higher in Asian trading overnight following the attack, but concerns over China’s economy and ample crude supplies helped to keep gains in check.
Some analysts believe the Biden administration most likely will retaliate to the attacks in a way that would not affect the oil markets in a presidential election year.
Biden “cannot retaliate for the attack on the U.S. base on the Jordanian-Syrian border in a way that increases oil prices,” Energy Outlook Advisors’ Anas Alhajji said, adding that “anything above $85 Brent is a danger zone in an election year.”
Everyone knows the Biden administration does not want oil prices to increase above current levels, Alhajji told MarketWatch.
Front-month Nymex crude (CL1:COM) for March delivery closed -1.6% to $76.78/bbl, after U.S. crude climbed last week to its highest since mid-November, and front-month March Brent crude (CO1:COM) finished -1.4% to $82.40/bbl.
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The S&P 500 Energy Index (XLE) was the only one of the 11 stock market sectors to decline Monday.
China’s real estate crisis deepened as a Hong Kong court ordered the liquidation of property giant China Evergrande.
“The situation in China is the biggest headwind to the whole market,” Again Capital’s John Kilduff said. “That’s why the market keeps backing off from the war risk premium.”
OPEC+ appears to be making a slow start to its planned new 900K bbl/day oil production cuts, analysts at Kpler said, noting overall shipments have remained broadly unchanged so far this month.
Exports from the seven OPEC+ members engaged in new cuts have averaged 15.4M bbl/day so far in January, barely changed from December, Kpler estimated.