After two dark days for crude, oil prices are rallying again on Wednesday morning after U.S. President Trump triggered a small short-covering rally by tweeting that he has ordered the U.S. Navy to “Shoot Down And Destroy” Iranian gunboats if they harass U.S. ships.
Once again, President Trump’s tweet manages to lift oil prices hinting at an escalation of conflict with Iran.
Tensions in the Strait of Hormuz, the world’s number one shipping lane for crude oil, continue to play a role in the markets, albeit a much smaller one.
The world hasn’t forgotten about the attacks on the Abqaiq oil facilities in Saudi Arabia in September which triggered a 20 percent price jump in Brent crude, or the assassination of Iran’s top General Qassem Soleimani, which put the region on the brink of war.
President Trump’s tweet follows a string of incidents in the waters off the Iranian coast, starting with the harrassment of a US-flagged boxship on April 2nd by heavily armed Iranian patrol boats, followed by Iran’s deployment of anti-ship missiles on Qeshm Island in that same week.
Reports of the seizure of a Hong-Kong flagged tanker on April 14th weren’t confirmed by Iran, but suspicion fell almost directly on the country’s paramilitary Revolutionary Guard.
It was Iran’s latest move, however, that provoked Trump’s ire. Last Wednesday, a group of 11 Iranian patrol boars made some “dangerous and harassing” maneuvers near U.S. warships, passing within 10 yards of a U.S. flagged vessel. After badgering the U.S. vessels for around an hour, the Iranian boats left the scene.
Iran’s government did not react to the incident, but President Trump came out with a firm response on Wednesday morning, giving clear instructions to the U.S. Navy.
I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.
— Donald J. Trump (@realDonaldTrump) April 22, 2020
While President Trump’s tweet may have distracted the market for a bit, markets are bracing for a very bearish EIA crude inventory report, which analysts believe could become the largest crude inventory build on record.
In a ‘normal’ oil market, Trump’s tweet could have been a gamechanger, but in today’s woefully oversupplied market, its bullish effect won’t last very long.
By Tom Kool of Oilprice.com
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