Oil surges to $105 as Iran tightens grip on Hormuz
Oil prices surged again, yesterday, as Iran displayed its grip over the Strait of Hormuz with a video of its commandos storming a cargo ship following the collapse of peace
Oil prices surged again, yesterday, as Iran displayed its grip over the Strait of Hormuz with a video of its commandos storming a cargo ship following the collapse of peace negotiations and U.S. President Donald Trump’s indefinite extension of the ceasefire. Reports of Iran air defences engaging targets over Tehran and of a struggle between Iran moderates and hardliners, sent crude prices spiking.
U.S. crude, West Texas Intermediate (WTI) rose 3.11 per cent to settle at $95.85 per barrel, while Brent settled at $105.70 per barrel, up 3.10 per cent on the day.
Oil and commodity experts at Standard Chartered reported that the Brent crude price appears to represent an uneasy equilibrium between hopes of de-escalation and structural tightness in physical balances that is increasing as time passes.
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Despite trading in a $13.71/bbl weekly front-month range, Brent prices for June delivery have traded through $95/bbl on eight of the last nine trading days, and have settled within $1/bbl of it on six of those nine days. This includes 20 April, when the front-month settled at $95.48/bbl.
StanChart notes that near-term oil price movements are now largely headline-driven, constantly taking direction from escalation and de-escalation in the US-Iran conflict amid tightening in physical oil markets.
Constrained transit through the Strait of Hormuz has forced Gulf producers to shut-in production, with countries in the region cutting output by between 25 per cent and 80 per cent while spare capacity tightness and reliance on certain transit routes has been highlighted. The oil experts expect this theme to continue even when OPEC launches its maximum sustainable capacity (MSC) metric.
StanChart has predicted that oil prices will remain $10-20/bbl higher than pre-conflict levels even after the acute stage of the conflict ends, supported by purchasing for strategic reserves, a focus on resource nationalism and hoarding, as well as the logistical lags caused by the disruption.
