-- Crude oil prices retreated from a wartime high on Thursday after Brent briefly touched $126 per barrel, ending the session lower as traders weighed new US military options against a tightening global supply.
Front-month West Texas Intermediate crude futures slipped by 1.2% to $105.57 per barrel, while Brent futures fell 3.1% to $114.35/bbl, having hit a high of $126.41 earlier in the session.
"Oil hits wartime high after Axios reported that Trump is set to receive a briefing on new military options for action in Iran. He also said he won't lift the naval blockade of Iranian ports until he secures a nuclear deal with Tehran, extending the standoff disrupting energy flows through the Strait of Hormuz," Saxo Bank analysts said.
The breakdown in diplomacy, paired with a directive from President Donald Trump to prepare for an extended blockade, has left traders bracing for a protracted supply deficit that demand destruction alone may not be able to bridge.
Data from analytics firm Kpler indicates that Iran has only 12 to 22 days of unused storage capacity remaining.
Once these facilities are full, Tehran will be forced to cut daily output by an additional 1.5 million to 1.6 million barrels per day.
This looming cut would be layered on top of the estimated 10 mb/d already shut in due to the strait's closure.
ING analysts warned that while regional demand destruction is estimated at roughly 1.6 mb/d, it remains insufficient to fill the widening supply gap, suggesting that significantly higher prices may be the only remaining lever to balance the market.
US crude stockpiles dropped by 6.2 million barrels to 459.5 mmbbls in the week ended April 24, the Energy Information Administration said in its weekly report on Wednesday, amid signs of tightening supplies.
Meanwhile, Trump on Wednesday reportedly said the UAE's decision to leave OPEC could help ease rising energy prices.