Oil prices steadied to trade slightly higher Wednesday morning, significantly below peaks hit earlier in the session after Iran launched a rocket attack on American forces in Iraq.
Iran launched more than a dozen ballistic missiles against multiple military bases housing U.S. troops in the early hours of Wednesday morning, according to Pentagon officials.
Oil retreated from highs as it became clear no energy infrastructure was targeted. There were no reports of casualties so far either, leading traders to believe maybe there will not be a wider conflict that disrupts crude supply between the U.S. and Iran.
International benchmark Brent crude climbed more than 4% immediately after news of the attack, reaching a session high of $71.75 per barrel — it’s highest value since September. Brent has since pulled back to trade at $68.78, higher by 0.75%.
U.S. West Texas Intermediate crude futures spiked 4.5%, or $2.85, to a session high of $65.65, its highest level since April, before shedding gains to trade at $62.90, higher by just 0.3%.
The missile strikes came just hours after the funeral of Qasem Soleimani on Tuesday. The slain Iranian military commander was killed by a U.S. drone at Baghdad International Airport late last week, ratcheting up already deteriorating tensions between Iran and the U.S.
The latest escalation had sparked fears of a widening conflict in the Middle East, with energy market participants increasingly concerned the fallout could soon disrupt regional crude supplies.
President Donald Trump responded to Wednesday morning’s attacks on Twitter by saying: “All is well!”
“Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.”
“The reason the oil price came down is because Trump sent out a tweet,” James Eginton, investment analyst at Tribeca Investment Partners, told CNBC’s “Capital Connection” on Wednesday morning.
“As so often happens in financial markets since the Trump administration came in, Twitter is one of the most useful sources of working out commodity price directions as much as anything,” he added.
Markets on tenterhooks for US response
“I think traders fully anticipated a retaliation, but not on U.S. troops, which leads traders to fear the next move by the U.S. might be a strike back within Iran, which could open a whole other can of worms,” Tudor, Pickering, Holt & Co. managing director Michael Bradley said.
“Where markets go within the next 48 hours will now depend on the U.S. response,” he added.
U.S. stock futures plunged on Tuesday night, with the Dow Jones Industrial Average futures dropping more than 400 points at the low, indicating a loss greater than 300 points at Wednesday’s open. S&P 500 and Nasdaq 100 futures pointed to losses of at least 1%.
“At approximately 5:30 p.m. (EST) on January 7, Iran launched more than a dozen ballistic missiles against U.S. military and coalition forces in Iraq. It is clear that these missiles were launched from Iran and targeted at least two Iraqi military bases hosting U.S. military and coalition personnel at Al-Assad and Irbil. We are working on initial battle damage assessments,” Assistant to the Secretary of Defense for Public Affairs Jonathan Hoffman said in a statement.
“We are working on initial battle damage assessments.”
“The idea that Iran might wait or even not retaliate has been disabused,” Again Capital’s John Kilduff said Tuesday. “Oil now must wait out any reports of American casualties, which should then invite a fulsome U.S. response.”
He added that WTI could “easily be above $70” by morning.
On Friday oil prices surged more than 3% as the Street digested possible forms of Iranian retaliation, which some said could include targeting oil production facilities in Iraq or Saudi Arabia. But by Monday fears appeared to have subsided, and oil settled little changed after initially rising more than 2%. On Tuesday, prices slid about 1%.
