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Oil's bonkers week saw a 'stunning' collapse after spiking on the Trump-Iran turmoil

Jan 9, 2020, 17:27 IST
  • Oil this week briefly jumped to $70 a barrel, then on Wednesday sharply dropped to the mid-$60s level.
  • "The one-day collapse in Brent crude oil by half a big handle was quite stunning," says one analyst.
  • "There has been an abrupt reversal in risk appetite after Donald Trump's measured respond to the Iranian strikes," says another analyst.

Oil traders have had a heck of a 2020 so far.

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After soaring, briefly touching $70, earlier in the week, Brent crude oil was flat at about $65 per barrel on Thursday morning in London.

The price of Brent crude futures contracts whipsawed in reaction to events in the Middle East. Iran on Wednesday fired missiles on US bases in Iraq in retaliation for a US strike that killed Iranian military chief Qassem Soleimani last week. The tensions seemed to ease - and oil prices dropped - when US President Donald Trump said 'Iran appears to be standing down.'

"The one-day collapse in Brent crude oil by half a big handle was quite stunning," said Jasper Lawler, head of research at London Capital Group. "It is not without precedent, but does greatly reduce the possibility of another run above $70 in the near term."

Neil Wilson, at Markets.com said: "There has been an abrupt reversal in risk appetite after Donald Trump's measured respond to the Iranian strikes. Certainly the geopolitical risk premium is vastly diminished, but the genie's out of the bottle and we may expect the gently rising slope of price action to continue once it bases."

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Now, traders can shift focus back to 2019's biggest macro theme: the trade war.

"Markets have heard what they needed to hear and are ready to refocus on the signing of the US-China phase one deal," Lawler said. "The deal is supposed to be signed next week and investors are hoping it removes the biggest source of uncertainty over the economic outlook, paving the way for more investment returns this year."

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