Oil prices surged more than 2% on Wednesday after the United States launched airstrikes against Iran and reimposed crude sales sanctions, stoking fears that the fragile truce between the two nations could collapse and disrupt Middle East supplies once again. Brent crude futures rose $1.92, or 2.6%, to $76.08 a barrel at 07:00 a.m. Saudi time. US West Texas Intermediate (WTI) crude climbed $1.82, or 2.6%, to $72.26 a barrel. Both benchmarks had already gained about 3% on Tuesday following the US revocation of a general license that had authorized Iranian crude sales after previous attacks.
Market Reaction and Sentiment
While the revocation of the license does not fundamentally alter oil market dynamics, it has significant implications for market sentiment. ING commodity strategists noted on Wednesday that the move heightens the risk of a breakdown in the temporary deal between the US and Iran. The US airstrikes were a response to Iranian attacks on three commercial vessels transiting the Strait of Hormuz, according to US Central Command. These incidents have renewed concerns about the security of the crucial waterway.
Strait of Hormuz Risks
Saul Kavonic, head of research at MST Marquee, described the current situation as a reminder of how fragile passage through the Strait of Hormuz remains. He noted that this presents a contrary indicator to the prevailing sentiment that the market could be flooded into oversupply. If tensions persist and traffic through the waterway remains below 50% of pre-war levels, the resulting supply constraints could support higher oil prices. Before the war began in February, the Strait carried cargoes equal to about one-fifth of global energy supply.
Impact of Previous Truce and Short Positions
After the US and Iran signed a truce agreement last month, oil prices tumbled back to pre-war levels, and traders accumulated large short positions in oil futures, betting that prices would fall further. Expectations of a wave of pent-up Middle East supply entering the market drove these price declines. However, the recent escalation has prompted some traders to cover their short positions, fearing supply disruptions.
Vessel Attacks and Blame
Iran did not take responsibility for the vessel attacks, but Qatar blamed Iran for them, including one on a Qatari liquefied natural gas tanker that reported being struck by a drone, causing a fire in its engine room. A Saudi-flagged crude oil tanker, believed to be the supertanker Wedyan, was also damaged off Oman, though the cause was not immediately clear. These attacks have renewed concerns about tanker traffic through the Strait of Hormuz.
Iranian Control and US Stance
Iran is asserting its control over the Strait of Hormuz and has ordered ships to use a route closer to its coast rather than one nearer to Oman, which also borders the waterway. The US insists that the waterway must remain free to all, as it was before the conflict started. Since the war began, nations have drawn down their inventories to compensate for the supply shortfall. US crude oil inventories fell again last week, according to market sources citing data from the American Petroleum Institute. Analysts polled by Reuters had expected crude stockpiles to decline by about 2.4 million barrels in the week ended July 3.
