Oil Settles Higher on Supply Threats

Oil recovered as Iran continued attacks on energy infrastructure around the Middle East and Israel said it killed senior Iranian officials.

West Texas Intermediate climbed 2.9% to settle around $96 a barrel, while Brent closed above $100 for the fourth session straight. President Donald Trump reiterated that the US has so far spared key oil assets during attacks on military installations on Kharg Island because of how long they would take to rebuild.

“We’re not ready to leave yet, but we will be leaving in the near future,” Trump told reporters at the White House, speaking of Iran.

Operations were suspended at the Shah gas field in the United Arab Emirates, while an Iraqi oil field was also targeted by drones and missiles. Crude loadings from the UAE’s port at Fujairah, the country’s only export hub outside the strait, were again halted.

The strikes heightened the threat for global supplies as the war enters its third week, with a near-complete halt of shipping through the waterway starting to impact consumers, especially in Asia. Scandinavia’s biggest airline, SAS AB, has cut some flights amid higher jet fuel costs, while American Airlines said it may need to raise liquidity if fuel stays elevated.

Oil has risen more than 40% since the war started, but prices eased Monday as the US prepared to release the first tranche of emergency crude reserves. Israel on Tuesday said it killed senior Iranian officials, including security chief Ali Larijani.

“There is still this reservoir of disbelief and hope that this will be over soon,” Bob McNally, president of consultant Rapidan Energy Group and a former White House official, said in a Bloomberg Television interview. “But it is not stopping, and crude is marching higher.”

Trump also said Washington is “hammering” Tehran’s capacity to threaten commercial shipping through Hormuz and reiterated appeals for help from other nations to secure passage.

French President Emmanuel Macron on Tuesday said that his nation won’t join an operation to escort traffic through the strait in the “current context.” Greek Prime Minister Kyriakos Mitsotakis said his country and Europe will not participate in any military operations near Iran.

In the Middle East, the UAE and Kuwait have both reduced oil output further. Saudi Arabia is racing to boost exports through an alternative route that bypasses Hormuz.

“There is no plug for a hole this large,” said Dan Ghali, a commodity strategist at TD Securities. “The prospect of a prolonged period of instability in the Middle East grows louder, irrespective of this phase of the conflict.”

Transit through the strait is likely to become “increasingly conditional,” with Iran allowing passage for some vessels depending on their affiliation, JPMorgan Chase & Co. analysts including Natasha Kaneva wrote in a note. A series of ships have made their way out of Hormuz using a route that hugs unusually close to Iran’s coast, according to ship-tracking data compiled by Bloomberg.

The number of Iranian vessel crossing the waterway jumped to a wartime high on Monday, according to data compiled by Bloomberg. That included an oil tanker headed for China.

“Iran is looking to escalate and really squeeze the conflict,” Emily Ashford, head of energy research at Standard Chartered, said in a Bloomberg TV interview. “It’s trying to give a deterrence for this to happen again by showing that it can push prices significantly higher.”

Traders are increasingly pointing to a growing divergence between physical and paper markets, with Middle Eastern benchmarks trading at significant premiums to those in the Atlantic Basin. That’s helping keep global benchmark prices relatively subdued during US trading hours.

Oil Prices

WTI for April delivery rose 2.9% to settle at $96.21 a barrel in New York.
Brent for May settlement advanced 3.2% to settle at $103.42 a barrel.