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Drone Strikes on Iranian Military Leader and the Impact on Diesel Prices | Advisor Pulse

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Matt Muenster
January 3, 2020

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Drone Strikes Kill Iranian Military Leader, U.S. Claims Responsibility

A top Iranian Commander—Qasem Soleimani—was killed in Baghdad, Iraq by a U.S.-ordered drone strike. Soleimani was reported to be the leader of Iranian-guided proxy conflicts throughout the Middle East. This includes blame of Soleimani’s forces for attacks within the past week on Iraqi coalition bases (which led to the death of an American contractor and Iraqi personnel) and attacks on the United States Embassy in Baghdad.

The news of Soleimani’s death was met with a warning of “harsh revenge” for responsible parties from Iran’s Supreme Leader Ayatollah Ali Khamenei. Additionally, thousands of Iranians took to the streets to protest Soleimani’s death. As a result, the U.S. is sending an additional 3,000 troops to the Middle East.

What is the Impact on Crude Oil and Diesel Prices?

Energy markets overreacted to the news of the drone strikes in after-hours trading, with WTI oil and diesel spot prices increasing of $2.79 per barrel (4.6%) and $0.07 per gallon (3.5%), respectively. As is usually the case, the early volatility gave way to more modest increases throughout the trading day.

As of 3:00 pm, CT, oil and diesel spot price gains fell to $1.87 per barrel (3.1%) and $0.04 per gallon (1.8%), respectively. These price movements include trading behavior following a significant U.S. oil inventory draw of 11.5 million barrels reported this morning by the Energy Information Administration (EIA), which also puts upward pressure on oil prices.

The immediate impact of the drone attack on wholesale diesel prices should be limited to 3-4¢ per gallon at the start of next week. There is unlikely to be longer-lasting impacts—thanks to a well-supplied global oil market—but this could change if further conflict arises.

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