Oil Surges, US-Iran Strikes and US Stockpiles Raise Supply Risks
Oil prices rose for a third consecutive day after a fresh exchange of attacks between the US and Iran cast further doubt on the prospects of a peace deal that could open the Strait of Hormuz. On Wednesday (June 3rd), WTI rose 2.4% to close at US$96.02/barrel, extending this week's gains to around 9.6%. Brent's August contract rose 1.9% to close at US$97.81/barrel.
The rise was driven by escalation in the field. After the US reportedly struck an empty tanker bound for Iran, the US military said it had come under missile and drone attack. Iran was also said to have targeted a key US naval base in the region in Bahrain and an air base in Kuwait. Meanwhile, Israel's war in Lebanon has added to the complexity of the negotiations, making it increasingly difficult for the market to price in a swift de-escalation.
Market focus remains on the status of the ceasefire and the future of tanker flows in Hormuz. This uncertainty makes prices volatile; Last month, oil prices weakened on optimism about a deal, but the delay in a resolution has now raised concerns that the world will have to continue draining oil inventories while waiting for Gulf exports to fully recover.
Making the market even more sensitive is the state of inventories. US government data shows national oil/petroleum stocks have fallen for eight consecutive weeks, the longest stretch since early 2022. Stockpiles at Cushing, Oklahoma—the WTI delivery point—have fallen for a sixth consecutive week and are approaching operational minimum levels, reducing the cushion in case of prolonged supply disruptions in Hormuz.
Towards the close, Tasnim reported that Iran-US communications were still ongoing, but there had been no progress in negotiations. In the US, Trump reportedly asked Iran to list specific nuclear concessions as part of the initial agreement, after Iran had previously given verbal assurances. High volatility also caused market participants to reduce positions; Brent open interest fell to its lowest level since August, indicating increasingly limited speculative positions.
Outside the Middle East, other supply risks played a role: Russia reported a series of drones being shot down in the Leningrad region, while Ukraine claimed to have attacked the Petersburg Oil Terminal and military targets. The combination of geopolitical escalation and dwindling US inventories has made risk premiums sticky again, so oil prices remain highly headline-driven in the short term. (arl)
Source: Newsmaker.id
