Brent Breaks, US Military Options for Iran Lift Risk Premium
Oil prices surged to wartime highs after an Axios report said US President Donald Trump would receive a briefing on new military options for Iran, sparking fears of a new escalation in the Middle East. Brent briefly rose as much as 7.1% to reach $126/barrel, its highest intraday level in four years, while WTI surged above $110.
Axios reported that US Central Command Chief Admiral Brad Cooper would give a briefing on Thursday, signaling that a resumption of combat operations was being seriously considered. Although a ceasefire has held since early April, efforts to bring negotiators together have been unsuccessful, while the US and Iran both maintain a blockade that has reduced traffic through the Strait of Hormuz to near zero.
The Hormuz blockade, effective since late February, has restricted the flow of crude oil, natural gas, and petroleum products, tightening physical markets. The IEA has called the conflict the largest supply shock in history, while Vitol estimates the market faces a supply loss of around 1 billion barrels. Trump is also said to have discussed extending the blockade while minimizing the impact on US consumers in meetings with oil executives and traders.
The market is also reacting to the potential for economic escalation. Trump has said he will not lift the blockade on Iranian ports until a nuclear deal is reached, and the US has turned back dozens of ships since the operation began on April 13. The US is also reportedly pursuing forfeiture of two Iran-linked tankers, which would intensify economic pressure and encourage the formation of an international coalition to secure navigation in Hormuz.
On the market dynamics front, trading volumes in the June Brent contract thinned ahead of expiration, while the more active July contract also strengthened. Spread indicators point to tightening supply, with the spread between the two nearest December Brent contracts strengthening to over $11/barrel from around $3 two months ago. In recent trading, June Brent rose 5.8% to $124.84 (13.28 Singapore time), July Brent rose 3% to $113.79, and June WTI rose 2.4% to $109.44.
5 key points:
- Brent briefly surged 7.1% to reach $126, WTI above $110 after reports of US military options for Iran.
- Trump is scheduled to receive a briefing from the head of CENTCOM; the market believes further escalation is possible even though the ceasefire remains in place.
- Hormuz remains nearly closed; the IEA calls it the largest supply shock yet, and Vitol estimates supply losses at around 1 billion barrels.
- The US is maintaining the blockade until a nuclear deal is reached, preparing further measures such as tanker forfeitures and a navigation coalition.
- Market structure is tightening: December Brent spread strengthens to >$11; US crude exports reportedly hit a record high of >6 million bpd. (asd)*
Source: Newsmaker.id
