Crude Soft as Market Shows More Concern for Recession than US-Iran Rhetoric

Analysts argue over whether we're heading for a massive tightening - or oversupply. File Image / Pixabay

In a rare display of disinterest over geopolitical tension - namely the latest wave of saber-rattling between the U.S. and Iran - traders instead continued to worry about crude oversupply and as a result on Monday caused West Texas Intermediate to fall 37 cents to $67.89 per barrel, and Brent to sink by 6 cents to $73.01.

This is despite a lack of reason to worry about overproduction, other than the recent news that Saudi Arabia and Russia would ramp up output - but only to ward off perceived market tightening due to cutbacks in Venezuela and other countries.

Phil Flynn, senior market analyst at Price Futures Group Inc., summarized the mindset of his colleagues when he stated, "They're just continuing to chase from one headline to another."

With no cohesive line of thought uniting the trading/analytical community, `what if' scenarios abound, and while some factions fret over the prospect of another global glut due to so many countries pumping full out, others are worried about the exact opposite: that geopolitical events such as U.S. president Donald Trump's sanctions against Iran will remove more crude from the market than other countries can compensate for, thus driving prices into the triple digits.

That was the thesis of a think piece by CNBC on Monday, which noted that oil prices gained over 20 percent in the first half of this year, and that the last five U.S. recessions were also preceded by a rise in oil prices.

The news agency added that a recent Moody's report raised the odds of a 2020 U.S. recession to 34 percent, compared to 28 percent before this year's spike in crude prices; it also wrote that "some analysts" think that oil could reach $200 per barrel if Iran shuts down the Strait of Hormuz or takes military action as a result of the sanctions.

Of course, for those who take rhetoric seriously - even the outrageous, flowery sort that is routinely dispensed by the likes of Iran's political leaders - there is plenty to worry about: mainstream media on Monday was abuzz over Hassan Rouhani, president of the Islamic republic, warning Trump that "war with Iran is the mother of all wars."

Never one to be intimidated, Trump immediately tweeted that Iran risked dire consequences "the like of which few throughout history have suffered before" if the Islamic republic made further threats.

Less attention was paid to  Rouhani's complete quote, which read, "America should know that peace with Iran is the mother of all peace, and war with Iran is the mother of all wars," suggesting that harmony between the two countries is possible.

Meanwhile, the fundamental shift in power balances within the global crude industry continues, with the U.S. making constant gains as a supreme energy producer: last week it was reported that Italy's imports of American oil shot up to record levels in June, thus enhancing its reputation as a stable supplier of light, sweet crude that can go to market when others can't.