Oil Climbs in Recovery Rally While Traders Eye Iran Retaliation

(Bloomberg) -- Oil rallied as markets globally recovered from a recent rout and investors remained on edge over the possibility of a retaliatory strike from Iran on Israel.

West Texas Intermediate rose 2.8% to settle above $75 a barrel, following a small advance on Tuesday. Crude’s recovery comes after the commodity slumped to seven-month lows amid the recent equities rout. The Bank of Japan moved to reassure markets in the wake of historic volatility after the slump was prompted in part by a mass unwinding of so-called currency carry trades.

Traders are also closely monitoring geopolitical risks. In the Middle East, nations are bracing for a potential Iranian attack on Israel as payback for assassinations of Hezbollah and Hamas leaders. Ukrainian troops also launched a rare cross-border attack into Russia. 

Earlier this week, production was halted in Libya’s largest oil field after the internationally recognized government alleged “political blackmail.” On Wednesday, the country’s National Oil Corporation declared force majeure at the Sharara oil field, which previously pumped 270,000 barrels a day. 

In the US, crude inventories fell 3.73 million barrels, bringing stockpiles to the lowest level since February. Inventories declined for a sixth straight week, the longest streak since January 2022, in a sign that demand for physical barrels remains robust. 

Oil still faces headwinds from faltering demand in China and the US, and the potential addition of supply by the OPEC alliance from next quarter. 

“Those who firmly believe that economic contraction is inevitable will be happy to desert equities and commodities in the foreseeable future,” said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd. “But the rest, and they are probably the majority, will be reluctant to do so unless genuine signs of recession emerge.”

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