Drilling down on crude oil

CNBC’s Brian Sullivan reports from the Goldman Sachs Energy Conference on where oil could be headed. With the Fast Money traders, Tim Seymour, Karen Finerman, Jeff Mills and Guy Adami.

Oil prices dropped Wednesday, reversing an earlier spike, after Iran’s rocket attack on American forces in Iraq failed to destroy major energy infrastructure that could have disrupted global crude supply.

Tehran launched more than a dozen ballistic missiles against multiple military bases housing U.S. troops in the early hours of Wednesday morning, according to Pentagon officials.

Following an initial spike, oil retreated from highs to turn negative as it became clear no energy infrastructure was targeted. There were no reports of casualties so far either, leading traders to believe maybe there will not be a wider conflict between the U.S. and Iran that could hamper oil flows.

An unexpected rise in crude oil inventories as reported by the Energy Information Administration also weighed on crude prices on Wednesday.

International benchmark Brent crude fell 1.5% to $67.26, a marked reversal after at first climbing more than 4% immediately after news of the attack. The initial surge in response to news of the attack sent Brent up to a high of $71.75 per barrel — its highest since September.

U.S. West Texas Intermediate crude dropped 1.9% to $61.5 in a similar move, sinking from an initial 4.5% spike. WTI crude hit a session high of $65.65 immediately after the attack, its highest level since April.

The missile strikes came just hours after the funeral of Iranian Gen. Qasem Soleimani on Tuesday. The military commander was killed by a U.S. drone at Baghdad International Airport late last week, fueling already-bitter tensions between Washington and Tehran in the region.

The latest escalation had sparked fears of a widening conflict in the Middle East, with energy market participants increasingly concerned the fallout could soon disrupt regional crude supplies. But tamer comments from both the White House and a member of the Organization of the Petroleum Exporting Countries (OPEC) appeared to convince traders that the worst-case scenario had thus far been avoided.

President Donald Trump responded to Wednesday morning’s attacks on Twitter by saying: “All is well!”

“Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.”

Meanwhile, the United Arab Emirates Energy Minister Suhail al-Mazrouei told Reuters earlier Wednesday that he saw no imminent risk to oil passing through the critical Strait of Hormuz.

“We will not see a war,” he said from UAE capital Abu Dhabi. “This is definitely an escalation between the United States, which is an ally, and Iran, which is a neighbor, and the last thing we want is more tension in the Middle East.”

The relatively mild comments from Trump are key, said James Eginton, investment analyst at Tribeca Investment Partners.

“The reason the oil price came down is because Trump sent out a tweet,” he told CNBC’s “Capital Connection” on Wednesday morning. “As so often happens in financial markets since the Trump administration came in, Twitter is one of the most useful sources of working out commodity price directions as much as anything.”

Oil prices extended their decline Wednesday morning after the government reported morning that U.S. inventories of crude oil rose unexpectedly last week, with stockpiles climbing 1.2 million barrels to 431.1 million barrels.

That puts inventories around its five-year average for this time of year, the EIA said. Economists polled by Dow Jones had predicted crude stockpiles would drop 3.2 million barrels from the prior week.

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