Oil prices retreat after record gains

The spike stoked fears costlier energy and geopolitical instability could weigh on a slowing global economy. (Reuters pic)

LONDON: Oil prices fell Tuesday but held most of the previous day’s record gains fuelled by an attack on Saudi facilities that wiped out half the kingdom’s crude output.

Traders were nervously awaiting further US response after it said Iran was likely to blame. The crisis revived fears of a conflict in the tinderbox Gulf region and raised questions about the security of crude fields in the world’s top exporter Saudi Arabia as well as other producers.

It has also taken attention away from the upcoming trade talks between China and the US, as well as a much-anticipated policy meeting of the Federal Reserve, which is expected to cut interest rates Wednesday.

“Oil prices have settled in the wake of Monday’s 20% spike caused by a drone attack on a major Saudi Arabian refinery but (shares in) oil companies and utilities continue to trade higher,” noted Fiona Cincotta, senior market analyst at City Index trading group.

Prices of Brent crude — the main international oil contract — rocketed by one-fifth at one stage on Monday before settling up 14.6%, which was a record one-day increase.

The spike stoked fears that costlier energy and geopolitical instability could weigh on an already slowing global economy.

The main US crude contract, WTI, also surged almost 15% Monday.

“Geopolitical uncertainty is certainly nothing new in the Middle East,” noted Michael Hewson, chief market analyst at CMC Markets UK.

However Monday’s surge “has raised concerns that if sustained, a rise in prices could prompt further weakness in a global economy already vulnerable to concerns about slowing demand”, he added.

US President Donald Trump has said he is ready to help Riyadh following the strikes, but would await a “definitive” determination on who was responsible.

Iran-backed Huthi rebels in Yemen claimed responsibility, but Washington and Riyadh have pointed the finger at Tehran, which denies the accusations.

Trump appeared to temper his earlier warning that the US was “locked and loaded” to respond, saying: “I’m not looking to get into a new conflict, but sometimes you have to.”

Meanwhile, Iran’s supreme leader on Tuesday ruled out negotiations with the US “at any level”, as tensions mounted between the arch-foes.

Ayatollah Ali Khamenei said the US adopted a policy of “maximum pressure” on Iran because it believes it cannot bring the Islamic republic to its knees through other means.

European stocks were mixed in afternoon trading while on Wall Street the main indices fell at the start of trading despite US industrial output making a bigger-than-expect rebound in August.