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Oil Steadies as Iran Tensions Mingle With Economic Concerns

By Tsuyoshi Inajima and Grant Smith

(Bloomberg) Oil steadied after rallying almost 8% in three days as investors weighed the risks of a supply disruption in the Middle East against concerns over the global economy and demand.

Futures were little changed near $58 a barrel in New York. President Donald Trump imposed sanctions on Iran’s supreme leader, Ayatollah Ali Khamenei, on Monday, while also asking in a tweet why the U.S. is protecting the Strait of Hormuz, the world’s most important oil choke-point. Iran said the U.S. move has shut the path to a diplomatic solution.

Oil has jumped more than 10% since mid-June as rising tension between the U.S. and Iran spurs fears of disruptions to global energy flows or even outright war. That has reversed a decline driven by the escalating trade conflict between Washington and Beijing. A planned meeting between Trump and Chinese President Xi Jinping this week, and a gathering of OPEC and allied producers days later in Vienna, may provide fresh direction for the market.

“The geopolitical risk premium is partly offset by another stand-off, namely between the U.S. and China,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.

West Texas Intermediate for August delivery slipped 5 cents to $57.85 a barrel on the New York Mercantile Exchange as of 10:50 a.m. London time.

Brent for August settlement slid 17 cents to $64.69 a barrel on London’s ICE Futures Europe Exchange, extending Monday’s decline. The benchmark crude contract traded at a premium of $6.82 to WTI.

Trump told reporters at the White House that the sanctions would deny financial resources to Khamenei, who is the one ultimately “responsible for the hostile conduct of the regime.” The penalties “mean the permanent closure of the diplomatic path with the government of the United States,” Iran Foreign Ministry spokesman Abbas Mousavi said, according to the semi-official Iranian Students News Agency.

Other oil-market news:
  • Russia suggested it’s taking a wait-and-see approach on the OPEC+ output deal before the G-20 summit in Japan, at which Trump will meet China’s Xi.
  • The Organization of Petroleum Exporting Countries will need to continue restraining supply at least through the end of next year as trade disputes weigh on demand and output surges from North America to Norway, according to the chairman of consultants Wood Mackenzie Ltd.
  • The cost of insuring Middle East oil shipments is soaring as tensions mount in a region responsible for about a third of all seaborne petroleum.
  • A Czech oil refiner stopped taking crude delivered by pipeline from Russia amid concerns the barrels may be contaminated with organic chlorides.

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