Hormuz and Saudi Arabia Key, Oil Remains Volatile
Oil prices rose on Friday (April 10), extending the modest gains from the previous session, as the market weighed Middle East supply risks ahead of planned US-Iran talks later this week. Brent rose 1.0% to US$96.83/barrel, while WTI added 0.9% to US$98.78/barrel. However, both contracts remained on track for weekly declines of more than 10%.
Price support came from the ongoing disruption to traffic in the Strait of Hormuz. Reuters reported that shipping volumes on Thursday remained well below 10% of normal levels, while Iran demanded that ships passing through remain within its territorial waters. This situation has kept the market from expecting a normalization of supply despite the two-week ceasefire announced this week, which had previously triggered a sharp price decline.
Uncertainty has also increased due to differing interpretations of the ceasefire. Within hours of the agreement, Israel launched heavy airstrikes against Hezbollah in Lebanon, declaring the operation not covered by the agreement. Israel also said it would begin direct negotiations with the Lebanese government regarding the possible disarmament of Hezbollah, while Prime Minister Benjamin Netanyahu asserted there was "no ceasefire" with Lebanon.
On the physical supply side, Saudi state news agency SPA reported that the bombing of Saudi Arabian energy facilities cut production capacity by about 600,000 barrels per day and throughput of the East-West pipeline by about 700,000 barrels per day, increasing the risk premium amid the still-congested Hormuz flow. Several Asian countries dependent on oil imports via the strait, as well as European countries that use gas from Gulf states, remain sensitive to changes in regional security.
Market focus now turns to the US-Iran talks in Pakistan. Iranian media reported that Tehran denied reports that a delegation had arrived for the talks scheduled to begin Saturday and suggested the talks could be stalled if Washington did not fulfill its commitments regarding the ceasefire in Lebanon. Meanwhile, President Donald Trump has ratcheted up his rhetoric against Iran's plan to impose shipping fees in Hormuz; the Wall Street Journal quoted an Iranian lawmaker as saying Iran earned $2 million in fees on some vessels.
Looking ahead, oil prices are expected to remain headline-driven: the realization of the restoration of shipping flows in Hormuz, the outcome of weekend talks, and developments in the risk of attacks on energy infrastructure will determine whether the weekly correction continues or prices rebound amidst still-fragile supply.
Source: Newsmaker.id
