Brent crude jumps 4%, as US strikes in Iran set back hopes for Hormuz re-opening

[NEW YORK] Brent crude futures climbed about 4 per cent on Tuesday (May 26) after the US military carried out strikes in Iran, a setback to hopes over the weekend that the United States and Iran would reach an agreement to end the three-month war that would also re-open shipping through the crucial Strait of Hormuz.

US futures were down, however, catching up to Monday’s selloff in Brent, when US markets were closed.

Global benchmark Brent rose US$3.44, or 3.6 per cent, to settle at US$99.58 a barrel, while US West Texas Intermediate (WTI) crude fell US$2.71, or 2.8 per cent, to settle at US$93.89.

On Monday, Brent closed at its lowest since Apr 20, losing 7 per cent on renewed hopes for an agreement between the US and Iran US crude was down by contrast as that market was closed Monday due to the US Memorial Day holiday.

WTI closed at its lowest since Apr 22 on Tuesday, while US gasoline futures fell 7 per cent and US diesel dropped 4 per cent to their lowest closes in five weeks.

US officials have on several occasions said they were close to a deal with Iran to end the conflict, but have not reached an agreement beyond a temporary cease-fire that has reduced attacks to a minimum. On Tuesday, Iran said the US had violated a ceasefire after it conducted what it called defensive strikes in southern Iran, while US Secretary of State Marco Rubio said negotiating a deal to halt the conflict could “take a few days.”

Iran’s foreign ministry said US strikes in Iran’s southern Hormozgan province, where Iranian media reported sounds of explosions early on Tuesday, represented a “gross violation” of a tenuous ceasefire in place for nearly seven weeks. Both sides had previously indicated progress on a memorandum of understanding that could halt the war and restart shipping through the blockaded Strait of Hormuz, while giving negotiators 60 days to negotiate more complex issues, including Iran’s nuclear program.

“We are still waiting for more details on a potential deal,” said Giovanni Staunovo at UBS. “Meanwhile we see renewed tensions in the Middle East, while flows through the Strait remain restricted.”

The US strikes happened as Iran’s top negotiator and its foreign minister were in Doha for talks with Qatar’s prime minister aimed at reaching an agreement.

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Oil rebounds as strikes near strait muddy outlook for Iran deal

Tankers tracked passing through strait

Iran has effectively halted nearly all non-Iranian shipping in and out of the Strait of Hormuz since the war began in late February, choking off about one-fifth of global oil and liquefied natural gas (LNG) flows.

However, ship-tracking data showed three LNG tankers passed through the Strait in recent days, bound for Pakistan, China and India, along with a supertanker carrying Iraqi crude to China that had been stranded for nearly three months.

United Kingdom Maritime Trade Operations, however, said on Tuesday that a tanker had reported an external explosion on the vessel’s port side, close to the waterline, 60 nautical miles off Oman’s capital, Muscat.

Pakistan plans to boost domestic storage for crude oil and refined products to increase its energy security, according to a government document shared with oil producers and some of the world’s leading trading firms.

US consumer confidence slipped in May as worries about rising inflation linked to the war intensified and households’ views of the labor market remained pessimistic.

Inflation increases the cost of goods for consumers, and the increase in prices has central banks, like the US Federal Reserve, worried they will have to tighten monetary policy, which would likely increase consumer borrowing costs and reduce economic growth. REUTERS