Crude oil prices reversed much of the losses they suffered on Tuesday as traders sold, expecting a deal between Iran and the United States. Hours later, the wind of trader opinion has changed direction, and now doubts rule the market.
Brent crude was trading at $67.59 per barrel, with West Texas Intermediate at $62.49 per barrel, both up after they shed some 2% on Tuesday, falling to the lowest in two weeks. The recovery was also partially a reaction to Iran partially closing off the Strait of Hormuz during a military drill, possibly as a sign to the U.S. that it could block off one of the busiest oil chokepoints in the world.
The threat of shutting off the Strait of Hormuz always surfaces when tensions flare up between Iran and the United States—and Israel—but so far Iran has resisted the temptation to really shut it off, likely because this would lead to an immediate escalation with the U.S., which has recently been building an even greater military presence in the Persian Gulf. This means that the strait would not remain shut off for very long, and it could lead to a full-scale war between the two countries, with unsurprising consequences for oil prices.
In an update from the negotiations in Geneva, Iran’s foreign minister, Abbas Araqchi, said that the two sides had reached an understanding on the “guiding principles” of their deal. However, finalizing that deal was a way off.
“Crude oil prices look poised for a technical rebound … However, a finalised agreement remains distant, and markets remain cautious about the durability of diplomatic momentum,” Indian SS WealthStreet analyst Sugandha Sachdeva said, as quoted by Reuters today.
Eurasia Group, meanwhile, estimated there was a 65% chance of the United States launching a military strike against Iran by April.
By Irina Slav for Oilprice.com
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