NEW YORK (DTN) -- Spot-month New York Mercantile Exchange oil futures settled lower Monday afternoon on an easing geopolitical risk premium following an escalation in tensions between Iran and the United States late last week and pressure from an increase in the number of active oil rigs in the U.S. reported Friday afternoon.
"The risk premium has faded after the weekend because people realize nothing bad is going to happen," said senior analyst Phil Flynn at Price Futures in Chicago. "And we have normal weather so there's not a lot of [seasonal] demand."
Tension between the U.S. and Iran escalated last week when President Donald Trump issued a warning to Tehran over a Jan. 29 ballistic missile test conducted by the Islamic Republic, and followed that warning with sanctions on several Iranian individuals and entities.
"Iran seems to be playing it cool in denying that it was sending a message to the U.S. via its missile program," said Citi Futures analyst Tim Evans in New York.
As the rhetoric eased, the market turned its focus towards the potential for an increase in Iranian crude output in March. Iran, a member of the Organization of the Petroleum Exporting Countries, would be increasing production while OPEC has enacted production cuts to limit their output to 32.5 million bpd.
"The talk of increased Iranian crude oil production for March is of greater direct concern for the market in what would be a significant crack in the larger OPEC effort to limit supply," said Evans.
Based on secondary sources, OPEC reported Iran's crude production at 3.72 million barrels per day (bpd) in December.
Oil services firm Baker Hughes, Inc. on Friday reported a 17-rig increase in the number of rigs drilling for oil in the U.S. last week that brought the number of oil rigs deployed in U.S. fields in 2017 to 58. On Friday, there were 583 oil rigs in operation in the U.S., the most since October 2015, while the Energy Information Administration reports U.S. oil production near a 10-month high at 8.9 million bpd.
NYMEX March West Texas Intermediate futures settled down 82 cents to $53.01 per barrel (bbl), near a $52.91 three-day low. ICE April Brent crude futures slipped $1.09 to a $55.72 bbl settlement, near a four-day low of $55.65. NYMEX March ULSD futures dropped 2.99 cents to settle at $1.6352 gallon, having posted a $1.6316 three-day low. March RBOB futures tumbled 4.34 cents to a $1.5103 gallon settlement, edging off a three-day low of $1.5051.
Analysts expect crude oil inventories for the week-ended Feb. 3 to have posted a build of about 2.5 million bbl, with EIA last reporting U.S. commercial crude inventory at 494.8 million bbl on Jan. 27, 23.4 million bbl or 5.0% above the comparable year-ago period. The American Petroleum Institute will release its weekly supply estimate late Tuesday afternoon and the EIA 10:30 AM ET Wednesday.
George Orwel can be reached at firstname.lastname@example.org
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