West Texas Intermediate advanced on Monday to trade around $82.10, up 0.70% on the day. Crude oil prices remain supported by the deadlock between the United States and Iran, which keeps concerns about oil flows through the Strait of Hormuz elevated. The prospects for a full reopening of the Strait remain uncertain as talks between Washington and Tehran appear to have reached a standstill. Iranian Foreign Minister Abbas Araghchi said no negotiations are currently taking place between the two and
West Texas Intermediate advanced on Monday to trade around $82.10, up 0.70% on the day. Crude oil prices remain supported by the deadlock between the United States and Iran, which keeps concerns about oil flows through the Strait of Hormuz elevated.
The prospects for a full reopening of the Strait remain uncertain as talks between Washington and Tehran appear to have reached a standstill.
Iranian Foreign Minister Abbas Araghchi said no negotiations are currently taking place between the two and that the U.S. must accept Iran’s conditions for shipping to resume through the strategic waterway.
Tensions intensified further over the weekend. Iranian Deputy Foreign Minister Kazem Gharibabadi called on US President Donald Trump to “accept the reality of defeat,” after Trump suggested that he would soon declare the Strait of Hormuz a “territory of the United States.”
The oil market is also monitoring developments in Lebanon following a renewed escalation in fighting between Israel and the Iran-backed Hezbollah. A further deterioration in the conflict could heighten concerns about the stability of energy supplies in the Middle East and maintain a geopolitical risk premium in WTI prices.
Supply risks are not limited to the Middle East.
Russia is facing fuel shortages after Ukraine resumed near-daily attacks on Russian oil refineries, adding another source of uncertainty over the availability of energy products.
Traders now turn their attention to the American Petroleum Institute (API) weekly Crude Oil Inventory report, due on Tuesday.
Bloomberg noted that, “the ceasefire is set to expire today,” there is “little left of that truce to begin with.” Negotiations have broken down and, over the weekend, Israel launched fresh strikes in Lebanon, a bulk carrier attempting to exit the Strait of Hormuz “was hit by a projectile,” and Yemen’s main port suspended operations after Houthi missile attacks.
Against this backdrop, Rabobank’s Bas van Geffen warned that additional US sanctions on Iran could prove costly at home as well, with Bloomberg having explored what a further “economic isolation” of Tehran might entail, given it is already subject to extensive sanctions and a naval blockade, “most of them” carrying “some repercussions for the US too.”
The bank argues that Washington’s “strongest move might be to sanction Chinese banks that finance the trade in Iranian oil,” but cautions this “will surely worsen US-China relations ahead of a scheduled Trump-Xi meeting.”
On the energy side, Rabobank noted that Washington has been trying to offset the fallout via the Strategic Petroleum Reserve, but “that hasn’t stopped prices from going up.”
More importantly, these buffers are finite: “The SPR has fallen below 300 million barrels for the first time since it was filled in the 1980s,” a level that “adds to concerns about the integrity of the caverns – as experts are divided over the amount of oil that needs to remain to prevent structural damage to the storage sites.”
Societe Generale highlighted that “since February 28, the Iran-US conflict has injected significant volatility into oil prices.”
The bank observed that “the forward curve has fluctuated sharply but has remained predominantly in backwardation, only briefly slipping into front-end contango during periods when hopes of de-escalation gained traction.”
With the conflict “effectively at a stalemate and inventories continuing to draw,” Societe Generale said that “the current degree of backwardation appears fundamentally justified.” It added that “the Strait of Hormuz crisis further widened this gap,” as “front-end oil prices surged to multi-year highs, pushing crude oil curves into deep backwardation.”
In commodity index space, the bank notes that “as a result, oil and refined products now account for roughly 51% of the GSCI, versus around 30% of the BCOM.”
(Source: OANDA)
The post US-Iran deadlock pushes WTI above $82 appeared first on Financial Mirror.
