Oil Falls as Geopolitical Risk Premium Drops

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Oil Prices Slip as Geopolitical Tensions Cool

Oil prices declined by 1% on Monday, erasing gains from the previous trading session, as reduced civil unrest in Iran appeared to lessen the likelihood of a U.S. military strike that could disrupt supplies from the key Middle Eastern producer.

Brent crude was quoted at $63.48 per barrel at 0912 GMT, a decrease of 65 cents or 1%.

U.S. West Texas Intermediate (WTI) crude for February delivery dropped 65 cents, or about 1%, to $58.84 per barrel. The February contract is set to expire on Tuesday. The more actively traded March WTI contract was at $58.77, down 57 cents or 1%.

Iran Developments Reduce Perceived Supply Risk

Authorities in Iran moved forcefully to suppress protests that had been triggered by economic hardship. Officials said the crackdown resulted in 5,000 deaths, and the unrest was subsequently contained.

U.S. President Donald Trump appeared to soften his earlier rhetoric on intervention, stating on social media that Iran had called off mass hangings of protesters, even though the country had not publicly announced any such plans.

This perceived de-escalation reduced the probability of direct U.S. intervention that could threaten oil exports from Iran, the fourth-largest producer within the Organization of the Petroleum Exporting Countries.

Analyst View: Trade War Uncertainty and Demand Concerns

PVM Oil Associates analyst John Evans highlighted the broader macro risk backdrop to the oil market. “The overriding sentiment of caution is due to the influence on how any expansion of a trade war, because of the U.S. and European fallout over Greenland, will have on global trade and by default, oil demand,” he said.

Evans added that, in parallel, the market was monitoring the possibility of damage to Russian infrastructure and distillate supplies. These concerns come at a time when forecasts point to colder weather ahead across North America and Europe, which, combined with the ongoing Iran situation, was contributing to market unease.

Market Conditions and Other Supply-Side Developments

Trading volumes were affected by the closure of U.S. financial markets on Monday for Martin Luther King Jr. Day.

Investors were also focused on future developments in Venezuela’s oil sector. Markets watched for clarity on plans for the country’s oil fields after Trump said the United States would run its oil industry following the capture of Nicolas Maduro. However, expectations for a significant and rapid increase in Venezuelan production remained subdued.

Separately, Kazakh producer Tengizchevroil, operated under the leadership of Chevron, reported on Monday that it had temporarily shut production at the Tengiz and Korolev oilfields. The company described the move as a precautionary step after an issue impacted power distribution systems.

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