Crude oil prices were set for another weekly gain today, the third in a row, as Israel and Iran continued to bomb each other with no sign of willingness on either side to switch to diplomacy.
At the time of writing, Brent crude was trading at $77.04 per barrel, with West Texas Intermediate at $75.67 per barrel as the latest war in the Middle East entered its second week. The benchmarks dipped slightly from Thursday.
The hostilities have pushed tanker rates sky high, along with vessel insurance, with many shippers choosing to avoid the Strait of Hormuz altogether, not least because the deployment of electronic interference warfare that scrambles the navigational systems of ships, increasing the risk of an accident.
This is the biggest physical-market driver of the oil price rally, with the potential risk for supply disruption still only potential. Indeed, earlier this week, prices retreated as traders changed their bets on the absence of any attacks on Iranian oil infrastructure of Iranian moves to close the Strait of Hormuz.
“Oil prices remain high due to doubled tanker rates and ships avoiding the Strait of Hormuz,” Price Futures Group analyst Phil Flynn told Reuters. “The risk to supply is keeping them on edge while there have been no major disruptions of Iranian exports,” he added.
ING estimated earlier this week that oil flow disruption in the Strait of Hormuz could push Brent crude to $120 per barrel. “OPEC’s spare capacity would not help the market in this case, as most of it is located in the Persian Gulf. Under this scenario, we would need to see governments tap into their strategic petroleum reserves, although this would only be a temporary fix,” the bank wrote.
Meanwhile, the prospects of the United States joining Israel in pounding Iran remain unclear as President Trump avoided giving a categorical answer, saying the decision on that would be made within the next two weeks. U.S. involvement in the war would quite likely push oil even higher.
By Irina Slav for Oilprice.com
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