Oil prices surged to almost $87 a barrel on Tuesday, their highest level in a month after the United States and Iran traded attacks amid a struggle for control of Hormuz Strait which has seen at least one seafarer killed and eight injured in strikes on oil tankers by Iranian Revolutionary Guard Corps forces. File photo by Neil Hall/EPA
Oil prices surged to a one-month high overnight after the United States and Iran traded attacks amid a struggle for control of the Hormuz Strait which has seen at least one seafarer killed and eight injured in strikes on oil tankers by Iranian Revolutionary Guard Corps forces.
The benchmark Brent crude contract for September delivery was trading at $86.90 in London at lunchtime on Tuesday, up $3.60 a barrel, while the contract for West Texas Intermediate for August delivery was changing hands up $2.42 at $80.56 a barrel.
The increases were on top of sharp gains on Monday amid three consecutive nights of strikes against Iranian military targets by U.S. Central Command and an announcement by U.S. President Donald Trump that he was reimposing the U.S. blockade of Iranian ports, taking control of the Hormuz Strait and threatening to impose 20% tolls on transiting cargo vessels.
Following a short-lived retreat to the low $70s per barrel after the sides signed a cease-fire MOU on June 17 — levels last seen before the war started at the end of February — Brent crude began moving back up again, leaving it currently around a fifth more expensive than the pre-war price.
Analysts warned crude was prone to a sharp hike, possibly back into triple figures, as emergency oil reserves in the United States and China — which are being tapped to plug shortages created by Iran’s disruption to Gulf oil exports via the Hormuz Strait — begin to dwindle.
“Crude oil is fast losing its strategic petroleum reserve buffer, and a violent repricing up cannot be discounted until the market sees toned-down rhetoric from both parties,” Sparta Commodities’ senior oil market analyst June Goh told Al Jazeera.
With the flare-up likely to see traffic passing through the strait fall to as little as 5-15% of pre-war levels, down from 30-50% before the latest round of fighting, Eurasia Group told The New York Times it expected the disruption to push the price up to $95 a barrel.
Bart Melek, global head of commodity strategy at TD Securities, said $100 a barrel was quite possible if it became obvious shortages were imminent.
Maritime traffic data shows the number of vessels passing through the strait between Friday and Sunday more than halved to 57 from the same period the previous weekend. That compares with about 130 a day before the United States and Israel unleashed their airborne offensive on Feb. 28.
“The oil market has proven extremely patient through this crisis, in large part thanks to an ample stock cushion upon which we were able to draw to blunt the sharpness of the supply shock. Unfortunately, much of that cushion has now been depleted, leaving us much more vulnerable to a rerun of March and April,” said Commodity Context founder Rory Johnston.
The U.S. Department of Energy claimed oil flows were stable with 8.5 million barrels of oil shipping via the strait on Sunday and pledging the U.S. military would “keep oil markets well supplied” regardless of what the Iranians did.
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