Oil Rises, Energy Inflation Fears Rebound
Oil prices rose for a second day after a volatile session, as increasingly harsh rhetoric regarding the Iran war raised concerns about a prolonged conflict. This anxiety was seen as outweighing the steps taken by developed countries to release emergency oil reserves to contain prices.
The WTI contract rose sharply after strengthening strongly in the previous session. Diplomatically, Iran conveyed to regional intermediaries that a ceasefire would only be possible if the US provided assurances that neither Washington nor Israel would attack Iran again in the future. However, the market considered this condition unlikely to be accepted by the US, diminishing expectations of an imminent end to the war.
However, oil's gains eased after the US announced plans to release 172 million barrels as part of a global effort to stabilize prices—an amount said to be nearly half of the current US strategic reserve holdings. The day before, oil also experienced a brief correction after the IEA approved an emergency release of 400 million barrels, far exceeding the release of reserves following Russia's invasion of Ukraine in 2022.
But the underlying market issues remain unchanged: the Strait of Hormuz remains effectively closed to commercial shipping, and investors are closely monitoring signs of a return to normal trade flows. Three ships were reportedly hit by projectiles suspected to be related to attacks in the narrow strait and the Persian Gulf, highlighting the security risks to shipping.
The near-closure of Hormuz—a passageway that normally carries about a fifth of the world's oil—has prompted Gulf producers to cut production and pushed up prices for oil, natural gas, and refined products like diesel. The impact of the war, which is entering its second week, has also raised concerns about a global energy inflation crisis.
Westpac believes that if the conflict remains unresolved and production shutdowns continue to increase, Brent could potentially move into a higher "new range" in the near future. On the policy front, several countries have begun detailing their contributions to emergency reserve releases: Japan is said to be preparing a large release from its strategic stockpiles, the UK and South Korea are also preparing their respective portions, while Canada is asking oil companies to also release some reserves.
The market appears to be accepting the reserve release as a buffer, but it's not enough to erase the risk premium as long as the war continues and Hormuz remains unconsummated. On the political front, President Donald Trump has reiterated that the war could soon end, but has also signaled that the US will remain in place until its targets are met—leaving the de-escalation narrative unclear.
In Asian trading on Thursday (March 12), WTI April crude strengthened and hovered around the $91 area, while Brent May crude had previously closed strongly around the $92 area.
Source: Newsmaker.id
