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Oil Soars as U.S. Killing of Iran General Stirs Fear of Conflict

Commodities Jan 03, 2020 05:24AM ET
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(Bloomberg) -- Oil jumped toward $70 a barrel in London after a U.S. airstrike ordered by President Donald Trump killed a top Iranian general in Iraq, intensifying fears of conflict in the world’s most important crude-producing region.

Brent futures surged by more than 4% in busy trading on Friday to levels not seen since the attacks on Saudi Arabia’s oil facilities in September. The airstrike near Baghdad airport killed Qassem Soleimani, the Iranian general who led the Revolutionary Guards’ Quds force, according to a U.S. Defense Department statement.

While no oil installations or production were affected, targeting one of Iran’s most powerful generals ratchets up tension between Washington and Tehran, heightening fears of an armed confrontation that could pull in other countries. Iran’s supreme leader, Ayatollah Ali Khamenei, vowed that “severe retaliation” awaits the killers of Soleimani.

“This is a seismic event in the region,” said Jason Bordoff, a former Barack Obama administration official who now works for Columbia University. “This is how U.S.-Iran tit-for-tat spirals out of control. Iran’s response will be severe and deadly. And certainly may include escalating attacks on energy infrastructure.”

Brent crude for March settlement climbed as much as $2.91, or 4.4%, to $69.16 a barrel on the ICE (NYSE:ICE) Futures Europe exchange, and traded at $68.62 as of 9:59 a.m. London time. The global benchmark’s bullish options bias was the biggest since early November while the closely watched spread between the December 2020 and December 2021 contracts was at the strongest level since October 2018.

West Texas Intermediate for February delivery was 3.6% higher at $63.36 a barrel, after advancing as much as 4.4% to the highest level since May. Total aggregate volume for Brent and WTI was about 10 times the 30-day average.

Tensions have been building between Washington and Tehran after an Iran-backed Iraqi militia stormed the American embassy in Baghdad to protest deadly U.S. airstrikes earlier this week. Concerns in the region have persisted over the past year as Saudi Arabia’s energy facilities as well as foreign tankers in and around the Persian Gulf have been the target of several attacks. The area has five of OPEC’s biggest oil producers.

The U.S. and Iran are already facing off over Trump’s crippling economic campaign against Tehran and suspected Iranian reprisals. Defense Secretary Mark Esper said on Thursday that America was ready to deploy more force in Iraq after the attack on its embassy.

The attack on Soleimani rattled other markets. U.S. equity futures and the Stoxx Europe 600 Index slid, while most shares in Asia reversed or erased gains. Gold hit the highest in four months as investors sought safe haven assets.

The strike also escalates an already tense three-way situation between the U.S. and major oil producers Iran and Iraq. The two Middle East countries combined pumped more than 6.7 million barrels a day of oil last month, according to data compiled by Bloomberg, more than one-fifth of OPEC output.

Energy exports from both countries also rely on the Strait of Hormuz, the narrow and crucial oil and natural gas shipping choke-point that’s always in focus when Middle East tensions flair, particularly with Iran.

“This is more than just bloodying Iran’s nose,” Stephen Innes, chief market strategist at AxiTrader Ltd. said in a note. “This is an aggressive show of force and an outright provocation that could trigger another Middle East war.”

Oversupply Concerns

Still, the rally could just as easily subside. While prices initially soared after the attack on Saudi Arabia’s Abqaiq processing facility in September, crude then retreated in another sign that the market’s psychology has shifted from fearing supply shortages to a concern with a surplus, largely because of the U.S. shale revolution.

Furthermore, OPEC is sitting on vast amounts of spare oil-production capacity after reducing supplies for most of the past three years. Consuming countries from the U.S. to China control millions of barrels stored in strategic petroleum reserves that can be deployed to offset any shortage.

In the biggest sign of the oil market’s transformation, the U.S. reported its first months as a net exporter of petroleum, including crude and refined oil products, late last year for the first time in roughly 75 years. In October, America exported a net 389,000 barrels a day, compared with net imports of close to 9 million barrels a day a decade or so earlier.

Oil Soars as U.S. Killing of Iran General Stirs Fear of Conflict
 

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Comments (10)
joshua ross
joshua ross Jan 03, 2020 10:40AM ET
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you're not the one that will go over there to fight. I'm tired of 17 years of this ********
Chris Martin
Chris Martin Jan 03, 2020 10:40AM ET
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You're right. Never old enuf for that. Perhaps if they continue nuclear needs we can send one as an example?
lee doloff
lee doloff Jan 03, 2020 9:19AM ET
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thsnk god go anihialte these terrorists once and for all the problem I'll be handled when they retaliate it I'll be an all out assault and we win
Dietmar Stahl
Dietmar Stahl Jan 03, 2020 8:29AM ET
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Lot of possibilities now. Any target could be hot. Aircraft Carrier be sunk, Pompeo or any Senator could be on the List, Trump assets. Oil industry.It can be bad for the economy. We don't need this now.
Chris Martin
Chris Martin Jan 03, 2020 8:29AM ET
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It's people like you that are hurting the world, bowing to the rabid animal style of Iran OR N.K. We finally do something and you whine. Did you whine when previous admin. had Osama killed and dumped into the ocean?
Jeremy Johns
Jeremy Johns Jan 03, 2020 8:29AM ET
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Thanks Obama for *******Osama.. Agreed Chris!
John Klan
John Klan Jan 03, 2020 8:15AM ET
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Oh no ! Does this mean their love affair with the U.S. is over?
secure us
secure us Jan 03, 2020 8:04AM ET
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nice shot guys
PMSF Small
PMSF Small Jan 03, 2020 7:42AM ET
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Bears are scardy cats. This too will pass. US economy strong and getting stronger. Dont worry
Dietmar Stahl
Dietmar Stahl Jan 03, 2020 7:13AM ET
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One or all Trump Hotels could be targeted, Strait of Homus blockage, Irak could send all US troops home and close the embassy. Lots of possibilities now.
secure us
secure us Jan 03, 2020 7:13AM ET
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US is helping Iraq by k.illng the roaches
Chris Martin
Chris Martin Jan 03, 2020 7:13AM ET
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All possible. IF you think the Iran pack can do much without receiving a whipping, I believe you're mistaken. The guy with the big brass ****is not only going to regulate their actions but I believe all nations will not allow Iran to have nukes. Something will stop it. As much noise as is made about it, they're bringing knives to a gunfight.
Kasra Allahyari
Kasra Allahyari Jan 03, 2020 6:55AM ET
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iran will answer it!wait Americans!
PMSF Small
PMSF Small Jan 03, 2020 6:55AM ET
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Written like a terrorsit
taylor jason
taylor jason Jan 03, 2020 6:55AM ET
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if they do america will ********that ****country off the map once and for all
Jeremy Johns
Jeremy Johns Jan 03, 2020 6:02AM ET
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Risk free for four months
George OfTj
George OfTj Jan 03, 2020 6:02AM ET
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Funny joke
Luuk Bernard
Luuk Bernard Jan 03, 2020 5:55AM ET
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Great job mr Trump you have won my vote.I lost all faith in Democrats after Benghzi you sire deserve my vote Trump 2020!! You show how you deal with creeps like that
Dee Mehta
DMFINANCE Jan 03, 2020 5:55AM ET
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Doped to max u cant imagine the repurcursions and fallout i.d.t.
Chris Martin
Chris Martin Jan 03, 2020 5:55AM ET
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And I presume you can't imagine what it's like to be an American !
Darryl Turner II
Darryl Turner II Jan 03, 2020 5:55AM ET
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overrated depending on if you're a minority or not.
 
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