The price of Brent oil saw a volatile day on Thursday as traders grappled with changing headlines over Iran and US inventory levels.
UKOIL – 4H Chart
The 4H chart in UKOIL captures the violent swing in oil on Thursday, with a dip below 69.00 quickly reversed to 73.00. With oil in a recent uptrend and the Iran headlines, this was not a totally surprising move.
Oil prices were initially lower on Thursday after the largest jump in US crude inventories in three years. Signs of weakness in the physical oil market also weighed on prices as traders assessed the US-Iran talks.
US crude inventories rose by 16 million barrels last week, according to data from the Energy Information Administration on Wednesday.
Weakness in the North Sea (UK) physical oil market was another factor for lower oil prices, said UBS analyst Giovanni Staunovo.
Further talks between the US and Iran began on Thursday, with Oman acting as a mediator. The two parties were said to have shared “positive and creative ideas,” while a senior Iranian official said the talks were “serious”.
The North Sea physical market is the driver of Brent futures, which are up around 15% so far this year. The market attention has shifted from talk of a supply glut to the Iran premium risk.
Further supply news saw Saudi Arabia boosting oil production and exports in a contingency for a US strike on Iran. The US has a habit of making strikes at weekends when markets are closed, and traders should be wary of holding positions over a weekend.
There is also a risk from peace headlines, as ING warned of an unwind of up to $10.
“A constructive resolution would likely prompt the market to gradually unwind as much as a $10 per barrel risk premium,” analysts said in a note.
