Crude oil prices receded below $100 a barrel on Friday as fears about a conflict with Iran ebb and the energy market mulls a sharp drop in weekly gasoline demand.
The retreat in energy prices, highlighted by a plunge in the price of natural gas to decade lows, may help ease pressure on cash-strapped consumers and struggling businesses.
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On pace for its sixth decline in seven days, crude tumbled as low as $98.02 on Friday and was recently off $2.19 a barrel, or 2.18%, to $98.35.
Energy insiders pointed to easing jitters about a conflict between the U.S. and Iran over the crucial Strait of Hormuz, where 17 million barrels of crude oil (35% of the world’s seaborne oil shipments) pass through each day.
“We’re kind of decompressing on the Iranian situation,” said Phil Flynn, energy analyst at PFGBest and a FOX Business contributor. “While it is a very serious situation, we all know the Iran situation is like the little boy who cries wolf. I think the market is not reacting as emotionally to every headline that has come out.”
Concerns Iran would follow through on threats to close the Strait of Hormuz helped send crude soaring more than $10 a barrel from mid-December levels of about $93.
“We are ready to take off some of the Iranian premium,” Olivier Jakob, managing director at Petromatrix GMBH, wrote in a research note this week.
Jakob pointed to fresh signs that tensions have eased, including the cancellation of a joint U.S.-Israeli military exercise last weekend, a White House letter sent to Iran and the U.S. Navy publicly announcing the departure of the USS Stennis supercarrier out of the Strait of Hormuz region.
“At this point, it does seem to us that there are some attempts at defusing the situation and some behind-the-scene diplomatic action,” Jakob wrote.
Meanwhile, the fundamentals have not painted a very bullish picture of the oil picture.
According to the Energy Information Administration, gasoline stockpiles soared by 3.7 million barrels last week to 227.5 million barrels, surprising analysts who expected a more modest rise of 2.6 million barrels.
The data showed distillate stocks jumped by 438,000 barrels to 148 million barrels.
Slammed by unseasonably warm weather, natural gas prices have plummeted by more than 24% over the prior eight sessions, landing on Thursday at their lowest settle since February 2002. Gas was off 0.17% to $2.359 per million btu’s Friday.
“Warm January has broken the back of the natural gas market and we believe we have reached an inflection point for a decisive response,” RBC analysts wrote in a note.
To be sure, the weekly inventory data did show crude oil stockpiles declined by a stronger-than-expected 3.4 million barrels last week. But energy traders appeared focused on the rising gas stockpiles.
“The market is still stunned by the big drop we saw in gasoline demand yesterday,” said Flynn. "We’re producing more gas at a time when demand is weak so that’s leading to concern it may weigh down the market.”
Flynn added, “It had some bulls rethink their bullish outlook.”