By Adedapo Adesanya
Prices of crude oil continued a recovery for the second day following news of escalating tensions between the United States and Iran.
On Wednesday, President Donald Trump authorised American military to gun down any Iranian gunboat making any attempt to harass their ship.
A day after, the leader of Iran’s elite Islamic Revolutionary Guard Corps (IRGC) retaliated and promised a “crushing response” to any American military attacks in the Gulf.
It is believed that the market, starved of a positive disruptive news, latched onto the wave of geopolitical dispute to start moving up, after falling more than 20 percent so far this week.
On Thursday night, the Brent crude oil gained $1.51 or 7.4 percent to settle at $21.88 per barrel, while the West Texas Intermediate crude oil rose 23.2 percent or $3.20 to settle at $16.98 per barrel.
A possible attack by the US translates to reductions in the region’s production and exports if things escalate, and this will lead to rise in the prices of oil.
Earlier this year, on January 3, US military, following President Donald Trump’s orders, killed a top Iranian general and the news raised oil prices by more than 20 percent.
After that subsided, the market didn’t face any other geopolitical tensions, but was badly hit by the duo of coronavirus pandemic and oil price war between Saudi Arabia and Russia. These led to falling demand and increasing oil production.
The virus and oil war have since plunged prices, but when the US President threatened to destroy Iranian gunboats if they harass US navy ships, it boosted the possibility of renewed tensions in the Middle East.
Analysts believe that this news will do nothing to save crude’s enormous loss this year as the coronavirus pandemic continues to shatter global demand.
Oil has been under enormous pressure as a historic deal by the Organization of the Petroleum Exporting Countries (OPEC) and other major oil producers failed to halt a slump in the value of the commodity immediately.
OPEC+’s deal to slash production by nearly 10 million barrels a day in May won’t be enough to offset the demand destruction from the COVID-19 virus in the short-term, which has been projected as high as 30 million barrels a day.
In the US, the world’s biggest oil producer, operators have started shutting wells and halting drilling — steps that could cut output by 20 percent and leave thousands of workers unemployed.
Reports show that as much as 1.75 million barrels a day are at immediate risk of shutting down, while the number of new wells being brought online is forecast to plunge almost 90 percent by the end of the year.
Modupe Gbadeyanka