Oil jumps $7 as the Iran ceasefire faces its bigget setback yet
WTI crude oil prices are up $7.02 to $94.35 on the biggest challenge to the Iran-USA ceasefire yet.
A report from Tansim said Iran’s negotiators have stopped responding to messages from the USA in light of the ongoing Israeli attacks in Lebanon. Those attacks have basically continued non-stop since the ceasefire was declared and Iran is now drawing a line (or posturing in that direction).
Israel initially said it would push to the Litani River but now it says it will go beyond it. If there’s any good news in the announcement, it appears to be only connected to Israel and not the series of US-Iran ceasefire violations in the Strait of Hormuz and nearby bases.
The most-troubling aspect of today’s report is that it says Iran’s allies in Yemen will “take action" in Bab el-Mandeb Strait. That’s a strait that’s similar to Hormuz and controls the Red Sea. It’s not clear if 'take action’ means attacks on ships sailing to/from Israel or a full blockade.
In any case, the oil market has had enough of the back-and-forth talks. It’s increasingly clear that the middle ground between Trump and Iran is going to be hard to bridge. Trump is also being attacked from hawkish Republicans who don’t like the controus of the deal between the US and Iran that’s on the table.
Working in Iran’s favor is that global oil inventories are being drawn down. On Friday, top executives and Exxon and Chevron sounded the alarm about those draw downs, saying they could rapidly lead to shortages and a spike in prices.
In my mental model of oil pricing in the war, I think that much of the physical market has taken cues from Trump, and they’ve been selling down tanks during the war in anticipation that Trump would find a way to reopen Hormuz. If that’s not the case, there could be a rapid scramble for oil.
The problem for Trump is that higher oil prices hand further leverage to Iran. It’s been three months since normal traffic transited the Strait of Hormuz and Iran likely sees this as an opportunity to get a strong deal.
Moreover, there are presistent rumors of discord in Iran’s leadership. Iran’s president denied an earlier report of his resignation but there is unending talk that the IRGC wants a fight or is determined to stick to a hardline stance.
Against that, the US has shown some success in transiting ships through Hormuz. At the same time, those are almost all ships that were stranded inside the blockade. I can’t imagine any ship owners who would be daring enough to sail into Gulf ports, fill the ships and sail out again under hostile conditions.
This article was written by Adam Button at investinglive.com.