Oil prices jump 6 percent as Trump says Iran made 'very big mistake' by shooting down drone

Both the US and Iran said that Iranian forces had shot down an American military surveillance drone, but the two sides offered conflicting details on the incident.

Published: 20th June 2019 09:09 PM  |   Last Updated: 20th June 2019 10:32 PM   |  A+A-

US President Donald Trump

US President Donald Trump (Photo | AP)

By PTI

NEW YORK: World oil prices spiked more than six percent Thursday on US President Donald Trump warning Iran made "a very big mistake" after it boasted of downing a US spy drone.

The developments accelerated day-on-day gains in US oil benchmark WTI in late New York morning trading. 

Europe's Brent Crude was up by nearly five percent.

Iran shot down the drone near the Strait of Hormuz, a major choke point for world crude shipments, spurring market fears of a confrontation that could badly constrain supplies.

Further solid support for oil prices, as for global stock markets, also came from the US Federal Reserve signalling it could soon cut interest rates, while the dollar and US Treasury yields fell.

The Bank of England, leaving key interest rates unchanged, warned against the rising danger of a no-deal Brexit, which analysts took as a sign that it, too, seems ready to take a more accommodating stance.

ALSO READ | Iran nuclear deal: Developments since US exit​

Iran's Revolutionary Guards said Thursday they had shot down a US "spy drone" which violated Iranian airspace near the Strait of Hormuz, in the latest incident to stoke tension in the area. The US later confirmed a US surveillance drone designed for high-altitude missions was brought down by Iranian forces, but insisted it was in international airspace.

"This will only stoke tensions in the region and produce short-term support for oil prices," said analyst Neil Wilson at trading site Markets.com.

Crude had ended slightly down Wednesday despite a drop in US inventories -- indicating a pick-up in demand -- and news that OPEC and other producers led by Russia had agreed a date to discuss further caps.

Worsening tensions

The drone incident comes amid worsening tensions between Iran and the United States.

The US has accused Iran of being behind a series of operations against oil tankers in highly sensitive Gulf waters, including two tanker attacks in the Gulf of Oman last week.

Tehran has denied involvement. It has floated the possibility Washington could be the author of the attacks, using the operation to justify force against Iran.

"We know that geopolitical tensions in the region are worsening and raise supply-side concerns in terms of short-term outages," said analyst Wilson.

"But with OPEC already curbing output and US production at a record high, we still think the market is far less susceptible to a shock than in years gone by."

Traders were also jolted Thursday by news that a Yemeni rebel strike targeted a desalination plant in the southwestern Saudi province of Jizan.

Fed spurs markets higher

Global equities were meanwhile spurred higher after Fed boss Jerome Powell said bank officials felt the case for a rate reduction had "strengthened", citing the trade standoff with China and weak inflation, adding it would "act as appropriate" to support growth.

The bank also dropped the word "patient" in describing its assessment of economic data, fuelling speculation of a reduction as soon as July.

The dollar was down against the euro, which had itself been under pressure since the European Central Bank on Tuesday hinted at rate cuts of its own.

The Bank of England, meanwhile, said Thursday that "the perceived likelihood of a no-deal Brexit has risen", compounding global concerns about increased trade tensions.

"The fact that Bank of England policymakers are flagging that the perceived risk of a 'no deal' Brexit is rising suggests that interest rates are unlikely to rise this year," said James Smith, an economist at ING.

"The latest statement is slightly more dovish than might have been expected," he said.

The softer outlook for UK rates caused the pound to pull back from its early highs.

Key figures around 1515 GMT

Brent North Sea oil: UP $2.86 at $64.68 per barrel

West Texas Intermediate: UP $3.25 at $57.23 per barrel

London - FTSE 100: UP 0.4 percent at 7,431.90 points  

Frankfurt - DAX 30: UP 0.5 percent at 12,365.81

Paris - CAC 40: UP 0.4 percent at 5,542.85

EURO STOXX 50: UP 0.7 percent at 3,482.95 

New York - Dow: UP 0.7 percent at 26,678.63

Tokyo - Nikkei 225: UP 0.6 percent at 21,462.86 (close)

Hong Kong - Hang Seng: UP 1.3 percent at 28,550.43 (close)

Shanghai - Composite: UP 2.4 percent at 2,987.12 (close)

Euro/dollar: UP at $1.1283 from $1.1226 at 2100 GMT

Pound/dollar: UP at $1.2697 from $1.2639

Dollar/yen: DOWN at 107.54 yen from 108.10 yen

Stay up to date on all the latest World news with The New Indian Express App. Download now
(Get the news that matters from New Indian Express on WhatsApp. Click this link and hit 'Click to Subscribe'. Follow the instructions after that.)

Comments

Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the newindianexpress.com editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on newindianexpress.com are those of the comment writers alone. They do not represent the views or opinions of newindianexpress.com or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. newindianexpress.com reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp