Oil tumbled after Iraq’s state marketing company said exports haven’t been affected by violent clashes in Baghdad while low liquidity exacerbated price moves.
West Texas Intermediate fell 5.5% to settle below $92 a barrel as risk-off sentiment weighed down most commodities. Clashes in Baghdad have yet to hit Iraq’s oil production, soothing initial trader concerns that a major source of supply could be disrupted. Crude’s tight market has outweighed worries in recent days that a global recession could slow demand. Meanwhile, liquidity keeps dropping to fresh six-year lows and below-average volumes have led to choppy summer trading, with prices moving in a $7 range on Tuesday.
Crude reversed Monday’s gains “on news that Iraq will keep their export ports open even though major political unrest remains,” said Dennis Kissler, senior vice president of trading at BOK Financial. But the supply-demand balance has “tightened some and this week’s crude storage is looking for another decline of 500,000-600,000 barrels, which if seen, would take storage back to the lowest in three months.”
While prices have softened in recent months, crude received a fresh boost after Saudi Arabia warned that it was possible the Organization of Petroleum Exporting Countries and its allies, which convene Sept. 5, would reduce production as futures didn’t reflect fundamentals. Other members of the alliance signaled their support. Separately, Goldman Sachs Group Inc struck a bullish note, urging investors in a note Monday to “buy commodities now, worry about the recession later.”
Iraq has the capacity to boost exports to all destinations and won’t refuse any requests for more oil, Alaa Al-Yassiri, the director general of SOMO, Iraq’s national oil marketing company, said in an interview. Violence has been reported in the center of Baghdad, far from the main production-and-export hub of Basra in the south and other important areas north of the capital.
Traders are also keeping a close watch on a potential supply increase from Iran as negotiations over reviving a nuclear deal continue. The US and the Persian Gulf nation remain at loggerheads over key details of an emerging agreement, and may need several weeks to resolve their differences.
“It seems OPEC+ isn’t interested in the oil price slipping much below $100 a barrel,” said Craig Erlam, a senior market analyst at Oanda. While that would be “put to the test in the event of a nuclear deal, which still looks very challenging, or a global recession, the words alone could keep prices high for now,” he said.
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