Oil Extends Drop as Risk-Off Tone Counters More Attacks on Ships

Oil prices fell for the second consecutive session due to a risk-off sentiment in the overall market, despite escalating attacks on ships off the coast of Yemen. Brent crude slipped to around $85 a barrel, while West Texas Intermediate dropped towards $80. These declines occurred despite two vessels being attacked, one of which was abandoned due to flooding and another sustaining moderate damage. Additionally, Houthi militants have increased hostilities in the region, leading to the sinking of a coal-carrier.

In broader markets, Asian equities experienced a dip ahead of a week that includes key inflation indicators that will impact interest rate predictions. The dollar remained near its highest level since November, making commodities more expensive.

However, crude oil is still on track for a monthly gain, and there are positive signs of increasing gasoline demand in the US, as well as a healthy demand for air travel, which is supporting the overall outlook. The prompt spread for Brent has strengthened this month, indicating a tightening supply in a bullish backwardation structure.
Warren Patterson, the head of commodities strategy at ING Groep NV based in Singapore, expressed continued support for the oil market, anticipating a tightening of the oil balance in the third quarter. He also noted that speculators have become more optimistic about oil as summer approaches.

Iran is preparing for snap elections on Friday, which were called following the unfortunate death of Ebrahim Raisi in a helicopter accident last month. The upcoming vote coincides with increased tensions between Iran and the West, as Tehran mobilizes proxy militias in the region to target Israel.