Oil resumes advance on concern Middle East war may escalate

Oil resumed gains — paring a steep drop from Monday — on concern that other nations may be drawn into the Middle East war.

Brent climbed toward $104 a barrel, after plunging by 11% on Monday as President Donald Trump delayed a threat to strike Iran’s energy infrastructure for five days, claiming there were talks with Tehran. Iran denied negotiations were taking place, while Israel kept up attacks. US crude benchmark West Texas Intermediate advanced about 4%.

US allies in the Persian Gulf were inching toward contributing to the fight, the Wall Street Journal reported. Among them, Saudi Crown Prince Mohammed bin Salman is now eager to re-establish deterrence and is close to a decision to join the attacks, the newspaper said, citing people familiar with the situation.

“If Gulf states were to join the conflict, it would represent a significant escalation,” said Linh Tran, a market analyst at XS.com. “The market remains highly sensitive to incoming headlines.”

Brent has risen more than 40% this month on concern the hostilities between the US, Israel and Iran that have rocked the Middle East will trigger a global energy crunch, boosting inflation. The war has stymied transit through the Strait of Hormuz, forcing Persian Gulf producers to cut millions of barrels of daily oil output. Petroleum products such as diesel and jet fuel have rallied even harder than crude, squeezing consumers and rattling governments.

The fall-out continued to spread. In South America, Chile is set to raise fuel prices as much as half, while in Asia, Japan ordered a review of its entire supply chain for oil-related products. Elsewhere, Thailand hiked diesel, China’s biggest oil refiner said it would prioritise local supplies, and the Philippines warned grounding planes due to a jet-fuel shortage was a “distinct possibility.”

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“If this shock lasts longer, this extreme tightness that’s now concentrated in Middle East and Asia would spread,” Goldman Sachs Group Co-Head of Global Commodities Research Daan Struyven told Bloomberg TV. Eventually, demand destruction would be required to rebalance supply, he said.

Iranian Deputy Speaker of Parliament Ali Nikzad said the Strait of Hormuz would not be returned to its previous state, and there would be no negotiations with Washington, the semi-official Fars news agency reported.

Tehran is reviewing correspondence it received from the US via mediators, CBS reported, citing a senior foreign ministry official. Meanwhile, gas facilities were hit in Isfahan, central Iran, the Fars news agency reported.

“It is unclear how far back-channel talks have progressed or if the IRGC is in any mood to settle at this stage when they remain in firm control of the Strait of Hormuz,” RBC Capital Markets LLC analysts including Helima Croft said in a note, referring to the Islamic Revolutionary Guard Corps. “Ships, not sound bites, will likely be what ultimately matters for physical markets.”

A trickle of ships has successfully exited the Persian Gulf in recent days, even as the bulk of traffic through the critical artery remains stalled.

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Prices:

Brent for May settlement added 3.8% to $103.71 a barrel at 1:17 p.m. in Singapore.
WTI for May delivery rose 4% to $91.65 a barrel

At the weekend, Trump had threatened to bomb Iran’s energy infrastructure unless Hormuz was fully opened within 48 hours. His decision to pause the strikes was seen as an effort to manage oil prices by people familiar with the diplomatic talks, and Trump on Monday acknowledged the link. “The price of oil will drop like a rock as soon as the deal is done,” he said.

The US president also suggested Washington and Tehran could jointly control Hormuz. The narrow conduit — which links the Persian Gulf to global markets — could be open very soon “if it works,” he said.

The repeated shifts in messaging from the US leader have left investors fatigued, dampening volumes as traders sift through a near-constant stream of sometimes contradictory headlines. Four of the six largest-ever moves seen in Brent futures have occurred since the conflict began.

“A negotiated outcome may be the best of a series of bad options that President Trump has,” said Will Todman, senior fellow in the Middle East Program at the Center for Strategic and International Studies. However, Iran will “go into these talks with great skepticism, fearing that President Trump is simply running down the clock until more military assets arrive in the region.”

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