Oil prices have surged to their highest levels since the beginning of the US-Iran standoff. In late Wednesday’s trade, Brent crude oil futures rose to their highest level in over three years, above the $125/bbl mark. The sharp sharp surge came in After US President Donald Trump Brent Crude warned that the Iran blockade will continue til it agrees to a nuclear deal.
Oil surges 10% over tensions in Strait of Hormuz
Brent prices spiked by nearly 10% in just one session, while the US benchmark, West Texas Intermediate, touched highs of $112/bbl. Industry experts have said that the oil rally is being driven by the stalled US-Iran talks, as the dual blockade of the crucial chokepoint – Strait of Hormuz, continues to remain in place.
Much of the commercial traffic through this waterway, which transits nearly one-fifth of global oil and liquefied natural gas supplies, has been halted, as US President Donald Trump has signalled his disapproval over Tehran’s nuclear programme.
The International Energy Agency has labelled the price surge as the “biggest energy threat in history”, with industry experts warning that oil prices could rise further, as supplies through the Middle East remain blocked.
Trump says blockade more effective than bombing
Trump, in a phone interview with media outlet Axios, said, “The blockade is somewhat more effective than the bombing. They are choking like a stuffed pig. And it is going to be worse for them. They can’t have a nuclear weapon.”
US Federal Reserve Chair Jerome Powell added that higher energy prices will push up near-term inflation, with central bank members noting that the Middle East developments are contributing to a “high level of uncertainty”.
Oil prices likely to rise more
Oil prices have surged by more than 50% since the beginning of the West Asia conflict, which started in late February.
“Oil will rise several dollars every day as long as there is no end in sight,” Financial Times quoted Ole Hansen, Head of Commodity Strategy at Saxo Bank, as saying. The analyst added that, “Markets are tightening and prices need to reflect that.”
Hamad Hussain of Capital Economics told the Financial Times, “The potential for a sudden reopening of the Strait of Hormuz has been a key factor holding back oil prices from climbing even further.” But markets were responding to “increased speculation that the US blockade of the Strait of Hormuz could last for months, rather than days or weeks.”
OPEC’s crucial member, the UAE, had announced its decision to leave the cartel effective May 1. While, HSBC Bank, in a note, said that the UAE may eventually raise production quotas, but in the near term, little change is expected as exports from the Gulf remain constrained, Reuters reported.