Oil Swings as Iran War Escalates and Trump Calls for Low Prices

Mint

5 hours ago

Oil fluctuated as traders wrestled with US President Donald Trump's call for lower prices amid signs of further escalation in the conflict with Iran.
West Texas Intermediate swung between gains and losses to trade near $73 a barrel after initially surging as much as 6.2%. Qatar suspended air traffic as a precautionary measure, while some oil producers reduced staff at fields in Iraq.
Qatar's move reversed earlier losses. Crude fell toward the start of the session after Trump warned against rising oil prices in a social media post, urging the Energy Department to facilitate more drilling 'now.' Energy Secretary Chris Wright replied, 'We're on it.'
Crude's gains had begun fading even before Trump's post. While there was initial concern that Iran would interfere with energy flows in retaliation for US air attacks on its nuclear sites over the weekend, those fears have ebbed somewhat. Tehran warned earlier that the strikes would trigger 'everlasting consequences,' and Reuters reported that the US sees a high risk of a strike against US forces soon.
'Traders are holding their breath, waiting to see if Israel or Iran expand this conflict beyond military and political targets into traded energy,' Bob McNally, founder of Rapidan Energy Advisers LLC and a former White House energy official, said in an interview on Bloomberg Television. 'So far, no one has pulled that trigger.'
The oil market has been gripped by an intensifying crisis since Israel attacked Iran more than a week ago, with crude benchmarks pushing higher, options volumes spiking, and the futures curve shifting to reflect fears of a near-term interruption to supplies.
The Middle East accounts for about a third of global crude production, but there haven't yet been any signs of disruption to physical oil flows, including for cargoes going through the Strait of Hormuz chokepoint. Since Israel's attacks began, there have been signs that Iranian oil shipments out of the Gulf have risen rather than declined.
The unprecedented US strikes were meant to hobble Iran's nuclear program, and targeted sites at Fordow, Natanz, and Isfahan. At the United Nations on Sunday, Tehran's Ambassador Amir Saeid Iravani said the 'timing, nature and scale' of its response 'will be decided by its armed forces.'
There remain multiple, overlapping risks for crude flows. The biggest of those centers on the Strait of Hormuz, should Tehran seek to retaliate by attempting to close the narrow conduit. About a fifth of the world's crude output passes through the waterway at the entrance to the Persian Gulf.
Two supertankers U-turned away from the strait on Sunday, before subsequently resuming on their original course and heading to transit the chokepoint.
Iran's parliament has called for the closure of the strait, according to state-run TV. Such a move, however, couldn't proceed without the approval of Supreme Leader Ayatollah Ali Khamenei. Authorities may yet restrict flows in other ways.
Navies in the region have consistently warned about an elevated threat to tankers, though a liaison between the military and shipping said on Sunday that the continued passage of vessels through the Strait is 'a positive sign for the immediate future.'
'Base case remains that we don't see significant disruptions, neither of oil nor natural gas in the Middle East,' Daan Struyven, head of oil research at Goldman Sachs Group Inc., said in a Bloomberg TV interview. 'We actually have energy prices gradually declining.'
It's not just crude markets being roiled by the the threats to supply. Diesel futures in Europe also surged at the open, touching the equivalent of almost $110 a barrel, before erasing those gains. The Middle East is a significant supplier of barrels to the region.
The crisis will also throw a spotlight onto the Organization of the Petroleum Exporting Countries and its allies, including Russia. In recent months, OPEC eased supply curbs at a rapid clip to regain market share, and yet members still have substantial idled capacity that could be reactivated.
US crude's prompt spread — the difference between its two nearest contracts — first widened to as much as $2.24 a barrel in a bullish backwardation structure, from $1.18 on Friday. The closely followed metric then retraced much of that move.
'It may take a few days or even weeks to discern the Iranian response to this unprecedented attack,' RBC Capital Markets LLC analysts including Helima Croft said in a note. 'Above all, we would caution against the knee-jerk 'the worst is behind us' hot-take at this stage.'
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