Oil jumps following fresh clashes between US and Iranian forces

OIL jumped following renewed clashes between US and Iranian forces, jeopardising the outlook for a deal to end the 10-week war.

US crude futures rose as much as 3 per cent in early trading on Friday (May 8). West Texas Intermediate oil prices were trading up 2.58 per cent or US$2.45, at US$97.26 a barrel, as of 2233 GMT, after initially gaining more than 3 per cent.

The WTI contract had settled down US$0.27 at US$94.81 per barrel in the previous trading session.

US forces intercepted unprovoked Iranian attacks and responded with self-defence strikes as guided-missile destroyers transited the Strait of Hormuz, US Central Command said. Still, the military command added that it “does not seek escalation.”

President Donald Trump said the three warships had successfully exited the waterway, and were undamaged following the attacks, according to a social-media post. On Iran, he added: “We’ll knock them out a lot harder, and a lot more violently, in the future, if they don’t get their Deal signed, FAST!”

The global oil market’s focus remains on the strait, which has been effectively closed since late February. That has triggered an unprecedented energy supply shock, with vital shipments of crude choked off and wells across the region shut in. The waterway is under a double blockade, with Teheran obstructing traffic, while US prevents ships calling at or leaving Iranian ports.

Until traffic through the conduit returns to at least a major percentage of where it was, “the downside in crude prices will remain limited,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities.

The latest clashes heighten tensions across the region, as the US tries to exit the war that has imposed an increasing burden on consumers as retail gasoline and diesel prices spike.

The Trump administration has been waiting for Teheran to respond to its proposal to reopen the trade route, with Iran’s leaders yet to indicate whether they will accept the terms.

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As the conflict has dragged on, liquidity in the oil market has slumped, with traders increasingly reluctant to take positions amid heightened volatility caused by a barrage of headlines and rapid shifts in sentiment. That acted to further amplify price moves in Brent and WTI.

The head of the International Energy Agency warned the world was losing 14 million barrels of oil a day because of the war, and ramping up production after the conflict would be gradual. Fatih Birol also reiterated during a visit to Canada on Thursday that the Paris-based IEA was prepared to take further action after members agreed in March to release 400 million barrels.

Bridgewater Associates founder Ray Dalio said the outcome of the US-Iran conflict can be defined in “almost black-and-white terms of who will control the Straight of Hormuz,” according to comments to the New York Times podcast Interesting Times with Ross Douthat. BLOOMBERG, REUTERS