By Barani Krishnan
Investing.com - The rally in oil fizzled on Tuesday after news of U.S. National Security Advisor John Bolton’s firing gave rise to speculation that Washington was getting rid of its chief hawk on Iran to make a deal with Tehran.
New York-traded West Texas Intermediate crude, the U.S. benchmark blend, settled down 45 cents, or 0.8%, at $57.40 per barrel,
London-traded Brent crude, the international benchmark blend, was down 29 cents, or 0.5%, at $62.30 per barrel by 2:45 PM ET (18:45 GMT). The session high was $63.76.
“The Bolton news is bearish as Bolton is a known hawk on Iran and the market is assuming that opens the door for talks with Iran, i.e. maybe a lifting of sanctions,” said Phil Flynn, analyst at Price Futures Group in Chicago.
“I think its an overreaction but we will see,” added Flynn, who typically has a bullish outlook on oil.
The United States has imposed sanctions on Iranian oil exports for more than a year to prevent Tehran from supposedly developing nuclear weapons. Bolton has in the past strongly advocated for military action against Iran, though Trump has resisted, saying he still wished for talks or a deal with Tehran.
On Tuesday, the president said in a tweet that he had asked for Bolton’s resignation, adding that he “disagreed strongly with many of (Bolton's) suggestions, as did others in the (a)dministration.”
Iran’s return to the oil market could see up to 1 million barrels per day being added to global supplies, complicating OPEC’s ongoing commitment to cut 1.2 million bpd to balance supplies.
Until Tuesday, oil had rallied for four-straight days, with both WTI and Brent adding about 7% in that stretch.
Initially driven by optimism over the impending restart of U.S.-China talks in October, the rally was later fueled by Saudi Arabia King Salman’s decision to install his son Abdulaziz as energy minister - a Riyadh strategy aimed at boosting both the market and listing prospects for its state oil company Aramco.
Oil bulls have three key events to watch for the remainder of this week, beginning with inventory data due at 4:30 PM ET (20:30 GMT) on Tuesday from the American Petroleum Institute. The API will release a snapshot of what the government is likely to report on Wednesday as crude and fuel storage numbers for the week ended Sept. 6. An Investing.com survey of analysts showed that U.S. crude stockpiles likely fell by 2.6 million barrels for the week, adding to drawdowns of nearly 15 million barrels in two previous weeks.
On Thursday, the OPEC Joint Ministerial Monitoring Committee (JMMC) will meet in Dubai, while the European Central Bank holds its latest monetary policy meeting. The JMMC, under the newly appointed Saudi energy minister, is expected to find ways to improve compliance to production cuts of 1.2 million barrels per day agreed by OPEC and its allies, led by Russia.
The ECB, meanwhile, could announce a rate cut favorable to oil and other commodities.