PBN Capital Logo

Oil prices drop amid demand worries, but U.S.-Iran tensions support

Oil fell on Tuesday amid concerns over the outlook for crude demand, but prices were supported after Washington announced new sanctions on Iran amid mounting tensions in the Middle East.

Benchmark Brent climbed 5% last week, and U.S. crude surged 10% after Iran shot down a U.S. drone on Thursday in the Gulf, adding to tensions stoked by attacks on oil tankers in the area in May and June. Washington has blamed the tanker attacks on Iran, which denies having any role.

U.S. President Donald Trump targeted Iranian Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials with sanctions on Monday, taking an unprecedented step to increase pressure on Iran after Tehran's downing of the drone.

"This would appear to effectively rule out any talks or negotiations to end the crisis," said Tom O'Sullivan, founder of energy and security consultancy Mathyos Advisory.

Trump also said on Twitter that other countries should protect their oil shipping in the Middle East rather than have the U.S. defend them.

U.S. crude futures fell 24 cents, or 0.4%, at $57.66 a barrel. The U.S. benchmark rose 0.8% in the previous session.

Brent crude futures were down 34 cents, or 0.5%, at $64.52 a barrel by 0639 GMT. They dropped by 0.5% on Monday.

Weak manufacturing data released on Monday by the Federal Reserve Bank of Dallas added to worries about slipping demand for crude oil.

However, supply is expected to remain relatively tight, as the OPEC+ appear likely to extend a deal on curbing output when they meet on July 1-2 in Vienna, analysts said.