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Oil Jumps 6% After Iran Downs U.S. Drone; 'Very Big Mistake' Says Trump

20/06/2019 15:15:11 Commodities
By Barani Krishnan Iran’s downing of a U.S. drone has given oil prices their biggest boost on the year and President Donald Trump’s tweet that Tehran had made “a very big mistake” leaves the market in uncertainty as to how the White House will respond.New York-traded West Texas Intermediate crude rose $3.11, or 5.8%, at $57.08 a barrel by 11:11 AM ET (15:11 GMT).London-traded Brent crude, the benchmark for oil outside of the U.S., rallied $2.62, or 4.2%, to reach $64.44 per barrel.Tehran’s Islamic Revolutionary Guard Corps said Thursday the drone was shot down near the Kouhmobarak district north of the Strait of Hormuz because it was spying on Iran. The U.S. has said the aircraft, which the Pentagon identified as a RQ-4A Global Hawk surveillance drone, was in international airspace when targeted and destroyed by a surface-to-air missile.The strait is one of the world’s most important passageways for oil shipments and Iran, facing U.S. sanctions on its oil exports, has hinted in the past that it could disrupt the channel.More than 12 hours after the shooting down of the drone, the White House had yet to say how it would respond. Trump’s reaction on Twitter was cryptic but ominous.“Iran made a very big mistake!” the president tweeted.The drone downing comes on the heels of last week’s attacks on two tankers in the Gulf of Oman and last month’s sabotage of more vessels and oil infrastructure belonging to Saudi Arabia and the UAE, which the U.S. has also blamed on Tehran. These aside, there have also been rocket attacks on U.S.-linked facilities in Iraq by suspected Iranian proxies that have stoked the fires of potential military showdown between the Islamic Republic and Washington.U.S. officials say these incidents are evidence that Tehran is an aggressive and terrorist power that must be confronted by the international community.Iran also pledged this week to begin enriching uranium again, raising fears that it was building a nuclear weapon, after Trump pulled the U.S. out an international nuclear accord with Tehran initiated by predecessor Barack Obama in 2015 and imposed sanctions on the Islamic Republic.While Trump has been the architect of much of the tensions with Iran, he has also been surprisingly restrained lately in his response to its taunts.Some analysts suspect the president was doing his best not to add to the escalation of geopolitical tensions that could drive oil prices – as well as prices of gasoline at U.S. pumps – higher as he embarks on his bid for reelection in 2020. High gasoline prices have historically have a negative impact on incumbent U.S. presidents during election years.“Trump’s measured response in recent weeks to much of the Iranian overtures is telling that he’s trying to avoid further stoking the fires of an oil rally,” said John Kilduff, partner at New York energy hedge fund Again Capital.“Yet, this drone incident could be different," Kilduff said. "The White House is probably deliberating on something more and that’s what’s unsettling to me.”Oil prices have had a volatile time since hitting 2019 highs of $66.60 for WTI and $75.60 for Brent in April. While OPEC production cuts and the combination U.S. sanctions on Iranian and Venezuelan oil exports had initially given the market a gain of more than 40% on the year, crude fell into a bear market last month. Oil fell as much as 20% from the April peaks on surging U.S. crude production and stockpiles and fears of a global recession from the U.S.-China trade war.