U.S. Forces to Middle East Trigger Crude Gains, Talk of $80 Prices

China concerns are overlooked in the scramble to worry about a tight market: File Image/Pixabay

The deployment by the U.S. of a carrier strike group and a bomber task force to the Middle East to discourage any attack on U.S. interests or its allies by Iran was enough  to send crude prices slightly higher on Monday, with West Texas Intermediate settling up 31 cents at $62.25 per barrel and Brent rising 39 cents to $71.24 per barrel.

The commodity has earlier tumbled to a one-month low after U.S. president Donald Trump tweeted  that he may raise tariffs by 25 percent on $200 billion of goods from China - apparently a bid to inject some energy into the trade talks between the two nations.

Signs that global markets may not be as tight as many analysts have feared has caused WTI to retreat by about 6 percent since hitting a six-month high in late April, but the deployment of military force into the Middle East has reportedly rekindled concerns that global supply may be at risk to a certain degree.

Iran has threatened to block the Strait of Hormuz, a chokepoint for crude shipments out of the Persian Gulf, after Trump tightened sanctions on Iranian barrels last week.

Ellen Wald, president of Transversal Consulting, noted that WTI's price drop "was due to fears that a trade war with China could cause a recession that sends oil prices lower; the recovery is basically saying, maybe we shouldn't have pushed it so far."

For his part, Bjarne Schieldrop, commodities analyst at SEB AB, called the crude market "overly bearish."

Indeed, once more analysts are contemplating oil prices of $80 per barrel, one such expert being Francisco Blanch, head of global commodities research at Bank of America Merrill Lynch: he told Bloomberg television that the Organization of the Petroleum Exporting Countries (OPEC) "has doubled the rate of demand growth over the span of four months" with its production cutbacks, and that Iran "keeps adding pressure on the supply side."

He added that he believes the U.S. sanctions will hold up "pretty well" and that soon we will "lose almost 1 million barrels per day of supply," and that Brent will reach $80 "within the next three months."

Presumably in a bid to ease concerns about supply, Saudi Arabia cut the cost of all crude grades to the U.S. for June while raising prices for other regions; however, some observers think Aramco may have offered the discount to compete with record American crude stockpiles.