Oil prices experienced a sharp decline following comments from US President Donald Trump regarding the situation in Iran. West Texas Intermediate (WTI) crude initially dropped as much as 3 per cent after the US close, erasing earlier gains. The price fell to approximately $US59 a barrel before recovering slightly. Prices had previously settled at $US62.02, buoyed by concerns over potential disruptions to Iranian oil production amid political unrest.
Oil prices had risen over the past five sessions as traders anticipated the US response to upheaval in Iran. The US had increased its military presence in the region, while Tehran cautioned neighbouring countries against supporting any potential attacks. The concerns centred on a possible disruption to Iran’s daily output of around 3.3 million barrels and key shipping routes, driving prices to their highest levels since October.
However, the market reacted swiftly to President Trump’s statement in which he indicated that the reported killing of protesters in Iran had ceased. These comments tempered expectations of an immediate US military response to the demonstrations against the government led by Supreme Leader Ayatollah Ali Khamenei. Trump cautioned that he would be “very upset” if the situation changed and the crackdown resumed.
Prior to this downturn, oil prices had been trending upward in the new year, influenced by turmoil in both Iran, OPEC’s fourth-largest producer, and Venezuela. This had added a premium to prices, reversing a period of five consecutive monthly losses driven by forecasts of oversupply.
