(March 24): Oil rose after a steep drop on Monday on concern other nations may join the Middle East war, and as an Iranian lawmaker ruled out talks with the US.
Brent climbed towards US$104 a barrel, after plunging 11% on Monday as President Donald Trump delayed a threat to strike Iran’s energy infrastructure for five days, claiming there were talks with Iran. Still, Tehran denied negotiations were taking place, while Israel kept up attacks. US crude benchmark West Texas Intermediate advanced almost 4%.
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.
Iranian Deputy Speaker of Parliament Ali Nikzad said the Strait of Hormuz would not be returned to its previous state, and there would be no negotiations with Washington, the semi-official Fars news agency reported.
Brent has risen more than 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.
“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.
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Iran is reviewing correspondence it received from the US via mediators, CBS reported, citing a senior Iranian 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 soundbites, 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 effectively stalled.
See also: Oil eases from 2022 high as Trump mulls ‘winding down’ in Iran
Prices:
- Brent for May settlement added 3.9% to US$103.81 a barrel at 10.34am in Singapore.
- WTI for May delivery rose 3.8% to US$91.44 a barrel
At the weekend, Trump had threatened to bomb Iran’s energy infrastructure unless Hormuz were 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.
“A negotiated outcome may be the best of a series of bad options that President Trump has,” said Will Todman, senior fellow in Middle East Program at the Center for Strategic and International Studies. However, Iran will “go into these talks with great scepticism, fearing that President Trump is simply running down the clock until more military assets arrive in the region”.
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