Oil Resumes Advance on Concern Middle East War May Escalate

Link copied

Oil Resumes Advance on Concern Middle East War May Escalate.

commodities :: 10hrs ago :: source - bloomberg

By Bloomberg News

(Bloomberg) -- Oil gained in a choppy session — paring a steep decline from Monday — on concern that the Middle East war may escalate, with flows of crude through the key Strait of Hormuz to global markets still choked off.

Brent climbed above $100 a barrel, after plunging by 11% on Monday as President Donald Trump delayed a threat to strike Iran’s energy infrastructure for five days, claiming there were talks with Tehran. Iran denied negotiations were taking place, while Israel kept up attacks. US crude benchmark West Texas Intermediate advanced about 2%.

Brent has risen about 40% this month on concern the hostilities between the US, Israel and Iran that have rocked the Middle East will trigger a global energy crunch, boosting inflation. The war has stymied transit through the Strait of Hormuz, forcing Persian Gulf producers to cut millions of barrels of daily oil output. Petroleum products such as diesel and jet fuel have rallied even harder than crude, squeezing consumers and rattling governments.

The fall-out continued to spread. Chile is set to raise fuel prices as much as half, while in Asia, Japan ordered a review of its entire supply chain for oil-related products and the country is said to have made inquiries with market participants on possible intervention in the crude oil futures market.

Elsewhere, Thailand hiked diesel, China’s biggest oil refiner said it would prioritize local supplies, and the Philippines warned that grounding planes due to a jet-fuel shortage was a “distinct possibility.”

“One major question is whether the global petroleum market can mitigate the Strait of Hormuz outage,” Macquarie analysts including Vikas Dwivedi said in a note. “Our analysis suggests the answer is yes but only if a variety of mitigation is deployed without the normal bureaucratic delays.”

US allies such as Saudi Arabia and the United Arab Emirates have hardened their stances against Tehran because of its bombardment of their territories. Saudi Arabia told the US it was ready to strike Iran if its own power and water plants were targeted by the Islamic Republic, according to people with knowledge of the matter.

US allies in the Persian Gulf were inching toward contributing to the fight, the Wall Street Journal reported. Among them, Saudi Crown Prince Mohammed bin Salman is now eager to re-establish deterrence and is close to a decision to join the attacks, the newspaper said, citing people familiar with the situation.

Tehran is reviewing correspondence it received from the US via mediators, CBS reported, citing a senior foreign ministry official. Meanwhile, gas facilities were hit in Isfahan, central Iran, the Fars news agency reported.

“It is unclear how far back-channel talks have progressed or if the IRGC is in any mood to settle at this stage when they remain in firm control of the Strait of Hormuz,” RBC Capital Markets LLC analysts including Helima Croft said in a note, referring to the Islamic Revolutionary Guard Corps. “Ships, not sound bites, will likely be what ultimately matters for physical markets.”

A trickle of ships has successfully exited the Persian Gulf in recent days, even as the bulk of traffic through the critical artery remains stalled.

At the weekend, Trump had threatened to bomb Iran’s energy infrastructure unless Hormuz was fully opened within 48 hours. His decision to pause the strikes was seen as an effort to manage oil prices by people familiar with the diplomatic talks, and Trump on Monday acknowledged the link. “The price of oil will drop like a rock as soon as the deal is done,” he said.

The US president also suggested Washington and Tehran could jointly control Hormuz. The narrow conduit — which links the Persian Gulf to global markets — could be open very soon “if it works,” he said.

The repeated shifts in messaging from the US leader have left investors fatigued, dampening volumes as traders sift through a near-constant stream of sometimes contradictory headlines. Four of the six largest-ever moves seen in Brent futures have occurred since the conflict began.

“If this shock lasts longer, this extreme tightness that’s now concentrated in Middle East and Asia would spread,” Goldman Sachs Group Inc. Co-Head of Global Commodities Research Daan Struyven told Bloomberg TV. Eventually, demand destruction would be required to rebalance supply, he said.

--With assistance from Charles Gorrivan and John Deane.