Oil prices eased today after earlier gains as markets assessed the escalating conflict between the US and Iran and its implications for efforts to end the war and fully reopen the Strait of Hormuz.
Brent crude futures were down 11 cents, or 0.1%, to $77.91 a barrel this afternoon. US West Texas Intermediate crude futures dropped 38 cents, or 0.5%, to $73.14 a barrel.
Brent and WTI crude futures hit their highest levels since June 22 yesterday.
But New York Federal Reserve President John Williams said today that markets expect oil prices to decline over the next six to 12 months, a view he said was reasonable.
Both crude benchmarks rose more than a dollar in post-settlement trade yesterday after the US launched strikes on Iran, which responded with attacks on Kuwait and Bahrain.
“Generally it’s a very nervous market … any news that dampens the prospect of a peace deal is adding a bit to the market,” Saxo Bank analyst Ole Hansen said.
Iranian forces targeted US military infrastructure in neighbouring Gulf states today following US strikes on Iran’s southern coastal and eastern provinces, further straining a three-week-old ceasefire agreement.
Iran fired ten ballistic missiles on Jordan’s Azraq military base, state media reported.
Some war underwriters have advised shipping companies to pause voyages through the Strait of Hormuz while others are reviewing their policy terms after renewed vessel attacks threatened a return to war, insurance industry sources said.
Before the latest flare-up in the US-Israeli war with Iran, prices had been falling as the market tried to absorb the pent-up Middle Eastern supply released by a fragile truce and some signs of rising inventories.
A fifth of global oil and liquefied natural gas supplies traversed the Strait of Hormuz prior to the Iran war, which began at the end of February.
Tehran’s control of the waterway has been its main leverage in the conflict.
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Goldman Sachs said risks to Gulf oil flows and near-term prices remain two-sided.
It expects flows to normalise by the end of July if negotiations continue, sanctions waivers on Iranian oil are reinstated and shippers receive security assurances. That scenario would require Strait of Hormuz flows to increase by 6.6 million barrels per day.
Conversely, the investment bank said failed talks, escalating tanker attacks and a potential US blockade of Iranian oil could further disrupt flows.
“In the base case, Brent probably trades in a $75–$85 range over the next month, with a mild upward bias,” said Aneeka Gupta, director of macroeconomic research at WisdomTree.
“The underlying supply recovery is real but incomplete, the surplus narrative is discredited for now, and diplomatic engagement (while stalled) hasn’t collapsed entirely.”
Elsewhere, Russia banned diesel exports yesterday to support its domestic fuel market after Ukrainian drone attacks on refineries caused fuel shortages and price spikes.
