Oil erases gain as traders digest latest mideast escalation
Prices on Friday closed at the highest level since November
Oil erased an earlier gain as traders digested the impact of separate attacks in the Middle East that killed US troops in Jordan and hit a fuel tanker in the Red Sea.
Brent crude was little changed after jumping as much as 1.5% in early Asian trading. Prices on Friday closed at the highest level since November.
The White House said Iranian-backed militants killed three soldiers and wounded others in a drone assault, while Tehran sought to distance itself from the attack. That followed a Houthi missile strike Friday on a vessel operated on behalf of Trafigura Group carrying Russian fuel, the most significant yet on an energy-carrying ship.
The incidents mark the latest sign of flaring tensions in a region that accounts for about a third of the world's crude output.
"It was a weekend of significant escalation," said Keshav Lohiya, founder of consultant Oilytics. "The big wild card remains, what will the US response be?"
The deaths of American troops, the first under enemy attack since Israel and Hamas went to war, puts President Joe Biden under intensifying pressure to confront Iran directly, risking a wider conflict in a region vital for global trade. Biden vowed retaliation, though it's not clear what it will be.
The Houthi attack on the tanker was consequential as shippers had previously assumed the safe passage of vessels tied to Russia and China. The militant group previously targeted ships linked to Israel, US and UK primarily.
A Trafigura spokesperson said the vessel that was attacked by the Yemen-based group was carrying Russian-origin naphtha — a product used to make plastics and gasoline — purchased below the price cap imposed by the Group of Seven nations. The strike was carried out on the Marlin Luanda.
Brent has risen around 10% this month as the situation in the Middle East intensifies, but it's still well below its level shortly after the Hamas attack on Israel in October. The prospect of robust supply from non-OPEC producers and slowing demand growth is helping to keep a lid on prices.
And while the attacks in the Red Sea have led to some re-routing of cargoes — adding to freight costs — it hasn't yet led to shortages or affected production
Refined products also rallied, with diesel futures in London gaining more than 5% at one point. Traders were also looking for any impacts on shipping costs, which had already been skyrocketing before the incidents in recent days.