Oil Rises, Doubts Over US-Iran Ceasefire Maintain Hormuz Risk
Oil prices rose after US President Donald Trump cast doubt on the sustainability of the ceasefire with Iran after rejecting Tehran's latest peace offer, extending the effective closure of the Strait of Hormuz, which is vital for global energy flows. The market added a risk premium again as the near-halt in shipping was seen as continuing to disrupt supplies of crude oil, natural gas, and fuel, while reviving inflation concerns.
Brent traded near US$108 per barrel after rising 2.9% in the previous session, while WTI approached US$102. Trump said it was "just a matter of time" with Iran, a day after he called the ceasefire "critical." The ceasefire agreement, in place since early April, has held despite escalating violence, including attacks on ships.
According to sources familiar with the discussions, Iran responded to Trump's proposal by demanding that the US lift its naval blockade and provide sanctions relief, while maintaining control over Hormuz traffic. Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management, believes the latest failure in negotiations increases the risk of a prolonged Hormuz shutdown and a return to tightness in the physical market when the temporary factors that had eased the shortage dissipate.
The oil surge is strengthening inflation channels, particularly through gasoline prices. Bureau of Labor Statistics data (released Tuesday) showed US inflation accelerated in April due to rising gasoline and food costs, with gasoline prices rising nearly 28% in the past two months. Bret Kenwell of eToro said energy cost pressures are not only felt at the pump but are also reflected in household budgets.
The war issue is also expected to be a focus when Trump meets with Chinese President Xi Jinping this week, given that China is considered the largest buyer of Iranian oil. The US Treasury Department on Monday imposed additional sanctions on entities that assist in selling Iranian oil to China.
However, indicators of market tightness have shown weakness in recent sessions as refineries reduce purchases. The Brent price spread in the backwardation structure is near US$4 per barrel, down from a peak of nearly US$10 early last month. On Tuesday, WTI for June delivery rose 4.0% to US$101.97 per barrel (11:00 a.m. New York), while Brent for July settlement rose 3.4% to US$107.75 per barrel.
5 Key Points
-Oil strengthened after Trump cast doubt on the US-Iran ceasefire, extending the risk of an effective closure of the Strait of Hormuz.
-Brent approached US$108/barrel; WTI approached US$102, with the continued surge reflected in Tuesday's settlement prices.
-Iran is said to be demanding the lifting of the naval blockade and sanctions relief, while maintaining control of Hormuz traffic.
-Energy gains have again raised inflation risks; US gasoline has risen nearly 28% in the past two months.
-Despite high geopolitical risks, physical market signals are weakening: Brent's backwardation has narrowed to around US$4 from nearly US$10 last month. (gn)*
Source: Newsmaker.id
