Oil posts first positive month since September

Adm. James Stavridis on deadly drone strike: Expect a week of two of heavy U.S. attacks in response

Oil prices posted the first monthly gain since September as the U.S. and Iran stand on the brink of a more direct confrontation in the Middle East.

U.S. crude and the global benchmark Brent rose 5.86% and 6.06% in January, though prices fell Wednesday after China factory activity contracted for the fourth consecutive month.

The West Texas Intermediate contract for March fell $1.97, or 2.53%, to settle at $75.85 a barrel. The Brent contract for March settled at $81.71 a barrel, down $1.16 or 1.40%.

“The factory data confirms our view that China, at least for now, is an impediment to global oil demand growth,” Tamas Varga, an analyst with the crude broker PVM, wrote in a Wednesday note.

Though Chinese factory activity weighed on the market, prices rose for the month on stronger than expected U.S. growth, disruptions to crude supplies in the U.S. due to winter storms, and Beijing’s efforts to simulate its economy.

U.S. crude supply bounced back last week after the winter storms, with inventories rising 1.2 million barrels and estimated production up to 13 million barrels per day, according to the Energy Information Agency.

And the Federal Reserve held benchmark interest rates steady Wednesday but indicated it is not quite ready to start cutting rates yet either.

U.S., Iran on the brink

Geopolitical tensions are also simmering in the Middle East with the U.S. and Iran standing on the precipice of a more direct confrontation, highlighting the potential risk to crude supplies in the region.

“The spreading conflict in the Middle East remains the most visible and growing risk for energy markets,” Natasha Kaneva, head of global commodities research at JPMorgan, told clients in a research note Tuesday.

“While escalation cannot be written off, it remains unlikely in our view, as main parties in the conflict have strong incentives to avoid direct confrontation, and so far they have acted accordingly,” Kaneva wrote.

Iran-allied militants have killed three U.S. soldiers in a drone strike in Jordan and hit an oil tanker with a missile in the Gulf of Aden in a series of major escalations since Friday.

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