Oil prices rose on Monday following days of tit-for-tat strikes by the US and Iran that underscored the fragility of their interim peace deal and again slowed energy shipping through the Strait of Hormuz. Brent crude futures climbed 58 cents, or 0.8 percent, to $72.57 a barrel at 05:07 a.m. Saudi time, while US West Texas Intermediate crude was at $70.11 a barrel, up 88 cents, or 1.3 percent.
Market Reacts to Renewed Hostilities
ING analysts noted in a Monday report: “There’s still plenty of risk facing the oil market. Even so, participants appear to be ... focusing on what a continued recovery in oil flows would mean for the global balance. This complacency is odd and clearly leaves significant upside risk if the supply recovery proves slow.”
Brent crude fell 10.6 percent last week, its third weekly decline, after crude shipments through the Strait of Hormuz rose to their highest level since the US-Israeli war on Iran began in late February. However, traffic has since slowed following renewed attacks on ships in the strait from Thursday, including a Qatar-linked oil tanker, that triggered strikes from the US and Iran in the worst escalation since they signed an interim peace deal.
Diplomatic Efforts and Supply Constraints
Capping oil price gains, Iran and the US agreed to halt recent hostilities in the Gulf and renew talks regarding their dispute over the Strait of Hormuz, a US official said on Sunday. ANZ analysts commented: “The market is likely to re-evaluate its assumption of a quick recovery of oil supply from the Persian Gulf.”
Saudi oil giant Aramco resumed crude oil loadings on Friday at its Ras Tanura terminal, west of the Strait of Hormuz, after they were halted for nearly four months, as oil producers ramped up output and exports ahead of an interim deal. Loadings continued even after a helicopter belonging to the company crashed on Sunday at Ras Tanura, killing 14 nationals. The cause of the crash was unknown.
Outlook for Supply Recovery
ANZ analysts added: “Physical flows are constrained by tanker backlogs, damaged infrastructure and production shut-ins. It could take the remainder of the year before supply is near pre-conflict levels.”
