Forexpros – Crude oil futures fell slightly in Asian trading on Tuesday in a choppy session, pulled up by ongoing tensions in the Middle East and downward on comments from a key Federal Reserve official saying that headwinds still face the U.S. economy.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in May traded at USD108.31 a barrel, down 0.23%.
The commodity hit an earlier session high of USD108.44 and a low of USD108.16.
In the Middle East over the weekend, the Associated Press quoted Aladin Borujerdi, head of Iran’s parliamentary foreign policy commission, saying on official Iranian media that the country would not back down with its plans to develop its nuclear program.
“The parliament will never allow the government to go back even one step in its nuclear policy,” Borujerdi said.
The news firmed oil, as fears the escalating tensions could result in supply cuts.
Tehran has threatened to close the Strait of Hormuz to protest western sanctions, while fears have been building that Israel could attack Iran with or without the blessings of the U.S. and other allies.
Meanwhile in the U.S., however, Federal Reserve Bank of New York President William Dudley said that while the U.S. economy is showing signs of improvement, headwinds such as high gasoline prices, waning fiscal stimulus measures and a weak housing market could slow recovery.
He also added the Federal Reserve could not rule out the possibility of rolling out monetary stimulus measures to jolt the economy, including a third round of quantitative easing, which consists of asset purchases from banks that inject liquidity into the economy, weakening the dollar in the process.
The Fed has launched two rounds so far since the downturn, injecting trillions of dollars into the economy in the process.
Such an announcement served as a mixed signal for oil, as on the one hand, a need for monetary easing would suggest a weaker U.S. economy, one that would demand less oil.
However, dollar liquidity that builds from such easing often finds its way into commodities markets, which supports crude.
Also pushing prices down were reports that Saudi Arabia is hiking its oil production to the second highest level since 1980.
Furthermore, the April delivery contract is expiring, and contract expiration often leads to volatile sessions as market participants look to close out positions or reposition their portfolios.
On the ICE Futures Exchange, Brent oil futures for May delivery were off 0.01% and trading at USD125.38 a barrel, up USD17.07 from its U.S. counterpart.
The gap in price between the two contracts is pushing close to a nearly USD20.00 all-time high and a historical spread of USD1.00.
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