(July 9): Oil jumped to a two-week high amid renewed US attacks on Iran and President Donald Trump’s assessment that the interim peace deal is a dead letter, heightening concerns about the free flow of crude from a key energy-producing region.
Brent futures were up almost 7% in late Wednesday trading after US Central Command confirmed a second night of strikes on Iran was underway. Earlier in the day, the contract briefly topped US$80 a barrel. The US benchmark West Texas Intermediate was up 6%.
Centcom said it was targeting Iranian installations “to further degrade their ability to threaten freedom of navigation in the Strait of Hormuz”, according to a social media post.
Earlier on Wednesday, Trump warned oil prices could rise further and that strikes on Iran may include a “takeover” of Iran’s key oil export hub of Kharg Island. Iran, for its part, threatened to close the Strait of Hormuz in response, state-run Press TV reported.
The US launched the first night of bombardments after Iranian attacks on merchant ships early in the week. Those incidents, which targeted a Qatari liquefied natural gas carrier and two large oil tankers, marked the biggest day of attacks since the memorandum of understanding came into effect less than a month ago.
“This skirmishing is really driven by ambiguity in the MOU and around what kind of status Iran is going to have in the Strait of Hormuz,” said Gregory Brew, geopolitical analyst at the Eurasia Group. “The upshot is more violence, though likely not a return to full-scale hostilities, and traffic through the strait taking a lot longer to return to pre-war levels.”
See also: Oil extends gains after Trump says ceasefire with Iran is over
Oil’s rebound signals the potential for a fresh wave of disruptions for global energy markets still reeling from the biggest supply disruption in history. The renewed hostilities stand to complicate decisions facing shipowners and regional producers over navigating the waterway that links top Opec producers in the Persian Gulf to global markets.
Refined products also extended their rally on Wednesday, with diesel surging as much as 14% after Russia banned diesel exports. Fuel prices have been resilient in recent weeks even as crude futures slumped, supported by Ukraine’s intensifying attacks on Russian energy infrastructure and tight global refining capacity following the Hormuz shutdown.
Traders also followed US oil inventory data published on Wednesday by the Energy Information Administration that showed the first increase in domestic crude stocks since April. The recent streak of declines was broken after exports slumped to the lowest since November as US supplies compete with discounted Middle Eastern barrels returning to the market.
See also: Shell signals strong oil and gas trading profit on Iran war
Still, commercial oil inventories in the US remain at the lowest in about four years, raising expectations that America may not be able to sustain its role as a supplier of last resort to the world for much longer if tensions rise again.
Even during the ceasefire, there were significant tensions around the critical energy chokepoint. Iran has insisted it controls the waterway and that transits without its permission aren’t valid. Tehran told the UN’s shipping watchdog on Tuesday that it has the right to control parts of the strait.
Before the strikes, the US Treasury revoked a sanctions waiver that had allowed Tehran to sell oil, reversing course on a key part of the interim deal. The agreement to lift sanctions on Iran saw millions of barrels of the country’s crude flood out of the Persian Gulf in recent weeks, much of which is now in limbo.
Uploaded by Isabelle Francis
