Crude Volatile as Hormuz Risks Increase

Oil fluctuated as investors assessed the widening impact of the US-Iran war on Middle East energy markets, with the conflict entering a fifth day.

West Texas Intermediate steadied to settle under $75 a barrel after surging roughly 11% in the previous two sessions. Traders have been speculating on the next moves by the US military to gauge the potential fallout for energy markets. White House Press Secretary Karoline Leavitt said ground troops are not part of Iran operations at the moment.

Iran’s semi-official Tasnim state media on Wednesday denied a New York Times report that operatives from Iran’s Ministry of Intelligence reached out to the CIA through another country’s spy agency with an offer to discuss terms for ending the conflict. That had earlier pushed prices into negative territory.

Meanwhile, Saudi Arabia said there was an attempt to attack its Ras Tanura refinery. The kingdom also confirmed it’s diverting supplies away from the Persian Gulf to the Red Sea to try to keep operations running. An Indian refiner told customers it was suspending fuel exports as global prices soar, while at least three very large crude carriers that sailed from Asia with plans to load in the Gulf have diverted toward the Atlantic Basin.

The oil market has been pitched into turmoil by the war, with strikes and counter-strikes spreading across the Persian Gulf, forcing major producers to shut output and all-but stopping traffic through the Strait of Hormuz, through which a fifth of the world’s oil transits.

Trade disruptions beyond oil are raising the specter of a global energy crisis and sparking inflationary fears.

The “market won’t calm down unless it sees proof of traffic resuming toward normalcy,” said Vandana Hari, founder of analysis firm Vanda Insights.

A quick resumption of flows through Hormuz is crucial for Gulf nations to be able to sustain production as storage fills up. The war is also causing a slew of output disruptions as Iran’s neighbors, including Iraq, the second-biggest OPEC producer, come under attack.

US President Donald Trump said Tuesday the US International Development Finance Corporation would offer insurance to vessels to help ensure the flow of energy and other trade, providing a naval escort “if necessary.” But the shipping industry sees it, at best, as only a partial solution to a historic crisis. Marsh, the world’s largest insurance broker, said the US plan could take a few weeks to arrange.

Major oil storage sites in Saudi Arabia are rapidly filling up, according to Kayrros. Four of the six tanks at the Ras Tanura refinery were full and the Ju’aymah terminal on the country’s east coast is quickly running out of spare capacity, officials said.

“We assume that Brent will trade in the $80s in March as the market processes mixed signals with some relief from a potential gradual recovery in Strait of Hormuz flows but also some renewed concerns as evidence of production cuts grows,” Goldman Sachs analysts including Daan Struyven wrote.

The bank lifted its forecasts for the second quarter by $10 a barrel to $76.

Prices for fuels are also soaring. Diesel markets in Europe posted their biggest two-day gain on record, while jet fuel prices are also leaping. Higher refined fuel costs are likely to add inflationary pressures to the global economy if sustained for any period of time.

US crude stockpiles rose by about 3.5 million barrels, the highest since May, according to a weekly report from the Energy Information Administration on Wednesday. The data eased some fears US supplies would be too tight to backfill lost Middle Eastern barrels if Hormuz remains effectively shut.

Oil Prices

WTI for April delivery was steady to settle at $74.66 a barrel in New York.
Brent for May settlement traded at $81.40 a barrel.