Oil pulls back from overnight highs, settles higher amid Middle East tensions

New York — Oil futures settled in the black Monday after steadily retreating from overnight highs as markets found resistance to higher prices in light of a lack of supply threats amid rising Middle East tensions.

ICE March Brent settled up 31 cents at $68.91/b, and NYMEX February WTI was up 22 cents at $63.27/b at market close.

Escalating US-Iran tensions over the weekend pushed crude prices higher at market open Monday. Brent briefly traded above $70/b after US President Donald Trump threatened to impose sanctions on Iraq if it decides to evict US forces.

The Iraqi parliament on Sunday voted to expel the US military from the country. Any law would not take effect until after ratification and one-year notice. Additionally, Iraq will aim to keep crude production flowing with or without US military presence.

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But markets shed some of this risk premium later in the session amid a lack of an immediate threat to supply.

Crude and product futures extended their decline in aftermarket trading, pushing the entire oil complex into the red late Monday. At 2147 GMT, March Brent was down 15 cents at $68.45/b and February WTI was 24 cents lower at $62.81/b.

"The oil market is not going to see higher oil prices until we see a definitive supply disruption," OANDA senior market analyst Edward Moya said. "Until we have that, I think prices are going to continue to come off this recent rally."

S&P Global Platts Analytics sees Brent prices being capped at $70/b without another major incident, but a "disruption is possible in the days and weeks ahead," said Paul Sheldon, chief geopolitical adviser.

Chevron has temporarily evacuated expatriate staff and contractors from Iraqi Kurdistan in response to heightened tensions in the Middle East, but said Monday its local staff continued work there.

But OPEC officials told S&P Global Platts that the bloc is prepared to respond to any supply emergency by reversing its production cuts if necessary.

Trump in a series of tweets over the weekend threatened further military action against Iran, should Tehran strike back as promised in response to the US killing of Iranian General Qassem Soleimani.

The US State Department warned early Sunday of heightened risks of attacks around oil facilities in Saudi Arabia's Eastern Province, and urged US citizens in Saudi Arabia to "immediately review precautions to take in the event of an attack."

But outside of bellicose calls for revenge, Tehran has yet to make specific threats against energy infrastructure in the region.

"Markets are finding some calm that we are not going to have a full blown war," Moya said.

NYMEX February ULSD settled down 2.75 cents at $2.0339/gal as markets viewed demand headwinds from mild temperature forecasts across the Northeast this week, but February RBOB was still up 56 points at $1.7544/gal at market settle.

Expectations of US product builds added to downward prices pressure Monday. Total gasoline inventories likely expanded 4.5 million barrels last week to around 247 million barrels, analysts told S&P Global Platts on Monday, and distillate stocks are expected to come in 5 million barrels higher at around 138.7 million barrels.

-- Chris van Moessner, christopher.vanmoessner@spglobal.com

-- Edited by Jim Levesque, newsdesk@spglobal.com