LONDON: Oil prices retreated further on Thursday after sharp losses in the previous session, as the market shifted its focused towards rising US crude stocks and away from fears of an imminent escalation of conflict between the United States and Iran.
Broadly, prices were moving back towards where they stood before the Jan 3 US drone strike that killed a top Iranian general, prompting an Iranian rocket attack on Iraqi airbases hosting US forces. These events had pushed crude to its highest in four months.
After a 4.1pc fall on Wednesday, Brent crude futures were down 39 cents at $65.05 a barrel at 1447 GMT, with the downward move accelerating once U.S. markets woke up. West Texas Intermediate was down 37 cents at $59.24 after sliding nearly 5pc the previous day.
During European trading hours Iranian media carried reports of military commanders speaking of further action aimed at expelling US troops from the region.
US President Donald Trump had eased tensions by stepping back from further military action, depressing oil prices and diverting attention back to a surprise build in US crude stockpiles last week.
Crude oil stocks were up 1.2 million barrels in the week ended Jan. 3 at 431.1 million barrels, the Energy Information Administration said on Wednesday.
Analysts in a Reuters poll had expected a drop of 3.6 million barrels.
JPMorgan analysts maintained their forecast for Brent to average $64.50 a barrel this year.
Top oil producers led by Saudi Arabia have agreed to reduce output by as much as 2.1 million barrels per day (bpd) through the first quarter of 2020.
“As geopolitical tensions appear to enter a new equilibrium … the overall supply conditions in the market tend to favour oil reverting lower,” Harry Tchilinguirian, oil strategist at BNP Paribas in London, told the Reuters Global Oil Forum.
“US crude oil production remains at a record 12.9 million bpd … it is not evident in our opinion that OPEC and its non-OPEC allies will fully implement the incremental supply cuts.”
Meanwhile, oil and gas ship owners are bracing to pay a price for US-Iranian tensions in the form of higher insurance bills, which could add hundreds of thousands of dollars to shipping costs that would ultimately be passed on to fuel buyers, mostly in Asia.