Oil prices retreated Wednesday, a dramatic reversal from the initial spike caused by Iran’s missile strike on bases in Iraq that house US troops.
The pullback from the initial rally reflects easing fears about the risk of a spiraling tit-for-tat conflict between the United States and Iran. Investors are breathing a sigh of relief that Iran’s attack did not do more damage and has so far not drawn a response from President Donald Trump.
US crude fell 1.5% to $61.75 a barrel Wednesday. That marks a sharp pullback from the late Tuesday high of $65.65 a barrel.
“The extent of the retaliatory attacks looks to have been limited,” JBC Energy wrote in a note to clients on Wednesday. “The market will be watching keenly today for hints as to whether or not President Trump will step into a further cycle of escalation.”
Brent oil, the global benchmark, dipped 0.8% to $67.70 a barrel. Brent had traded as high as $71.75 a barrel earlier.
There is a growing sense that Iran’s attack was not as bad as initially feared. No casualties have been reported. Some in the Trump administration think Iran intentionally missed areas with Americans, multiple officials told CNN.
Iran launched more than a dozen ballistic missiles against bases in Iraq that house US troops in retaliation for the American airstrike that killed a top Iranian general last week. The attacks were Iran’s response to the US killing last week of top Iranian General Qasem Soleimani in Baghdad. Iran has called that attack an “act of war” and “state terrorism” and had vowed a response.
“It comes as no surprise that there has been a reprisal from Iran — the concern is that this is just the sign of things to come,” said Matt Smith, director of commodity research at ClipperData.
Investors are on high alert for any signs of a clash between the United States and Iran that threatens oil supplies in the Middle East. Crude prices retreated earlier this week on hopes that energy supplies won’t be impacted by the tensions.
The energy minister of the United Arab Emirates said Wednesday that OPEC is ready to respond as tensions rise in the Middle East, saying that no country can afford a return to a situation where crude oil costs $100 per barrel.
Suhail Al Mazrouei told CNN Business that the cartel would seek to ensure that ample energy supplies are available.
“We will always make sure that we supply the world with whatever it requires,” al Mazrouei said, adding that the United Arab Emirates was building spare capacity in order to avoid shortages.
Still, the energy minister cautioned that even OPEC and its allies don’t have unlimited resources. “We have limitations as well,” he said, saying that the group “cannot just replace any quantity” of supply that is taken offline.
A spike in oil prices could deal a blow to the world economy, which is already struggling from weak manufacturing activity. Dow futures briefly tumbled more than 400 points during Asian trading hours on Wednesday.