Crude oil futures slip on lack of immediate supply threat

Singapore — Crude oil futures were lower in midmorning trade in Asia Tuesday as market participants pointed out that despite mounting tensions between the US and Iran, there was no immediate threat to oil supply.

At 9:51 am Singapore time (0151 GMT), the front-month March ICE Brent crude futures was down 46 cents/b (0.67%) from Monday's settle at $68.45/b, while the NYMEX February light sweet crude contract was 43 cents/b (0.68%) lower at $62.84/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," Moya added.

"For crude prices, the crux of the issue lies with supply as the operations around the Straits of Hormuz comes under threat with potential escalation of military conflict in the region. The exchange of threats between US and Iran over the weekend further cements the market's belief that we could be seeing more intensifying of tensions, but the likelihood of an all-out war which the market was attempting to price is highly uncertain," IG's market strategist Pan Jingyi said.

"Any spaced-out retaliations could cap the upside. Ultimately it is a supply and demand game for crude oil prices and with demand outlook having improved on reduced US-China tensions, the lack of any major supply disruptions provides little impetus for crude oil to accelerate its gains. Correspondingly, the implications on energy importers may also be measured," Pan added.

Meanwhile, a survey conducted by S&P Global Platts on Monday showed that commercial crude stocks in the US are expected to have fallen 3.7 million barrels to 426.2 million barrels during the week ended January 3, marking the fourth straight week of tightening US inventories, and leave stocks around 0.5% below the five-year average of the US Energy Information Administration data.

Total gasoline inventories likely expanded 4.5 million barrels last week to around 247 million barrels, analysts said, and distillate stocks are expected to come in 5 million barrels higher at around 138.7 million barrels.

Market participants were also looking for fresh cues from the inventory reports by the American Petroleum Institute and the EIA, due later Tuesday and Wednesday, respectively.

As of 0151 GMT, the US Dollar Index was down 0.01% at 96.330.

--Ng Jing Zhi, jz.ng@spglobal.com

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

--Edited by Manish Parashar, manishparashar@spglobal.com