West Texas Intermediate (WTI) on Monday surged 5.5% Monday, climbing off a six-week low on heightened tensions between Iran and the United States, dimming expectations for a peace deal in a war now entering its fourth month that has caused the largest-ever oil supply shock.
The rise comes after the United States over the weekend attacked Iranian military sites, while The Guardian reported Iran on Monday targeted a U.S. military base in Kuwait and said it will discontinue negotiations until Israel ends its war on Lebanon, pushing oil prices up from a six-week low.
The hostilities have dimmed prospects for a end to the war that began on Feb. 28, when the U.S. and Israel launched strikes on Iran, which responded by blockading the Strait of Hormuz, the narrow waterway that is the chokepoint for 20% of daily oil demand supplied by Persian Gulf countries
The price of the commodity rose well above US$100 per barrel in April as the war blocked exports from the Gulf, but have since moderated on hopes the apparently suspended talks between the two countries hosted by Qatar would produce a deal that reopens the Strait, while some of the region's exporters have found alternatives to tanker shipments and demand has weakened due to high prices.
"Traders continue to price in the likelihood that any agreement could trigger a near-term surge in supply from vessels currently stranded inside the Persian Gulf. By now, it is also clear that several key release valves have helped prevent an even larger price spike. These include a sharp increase in US oil exports, a slump in Chinese crude imports, the use of UAE and Saudi Arabian pipeline infrastructure that bypasses the Strait of Hormuz, strategic petroleum reserve releases, and weaker end-user demand through a combination of demand destruction and use of domestic stockpiles," Saxo Bank noted.