Brent crude futures for May were down $1.22, or 1.08%, to $111.56 per barrel at 0210 GMT after rising 2% earlier in the session, while U.S. West Texas Intermediate futures for May fell 98 cents, or 0.95%, to $101.90 a barrel after hitting their highest point since 9 March in early trading. Oil prices fell sharply as a result of the news that a U.S. Navy ship had escorted an oil tanker through the Strait of Hormuz. At its lowest, the price was under $82 per barrel at 18:20 on Tuesday. The price then rose again when messages came shortly after that the news had been removed. Despite the conflict messages, the price of oil fell over five per cent during early trading on Wednesday as markets hoped for some reprieve, with Brent crude tumbling to below $96 a barrel on Wednesday.
Iran said last night 'non-hostile vessels' can pass through the Strait of Hormuz provided 'they neither participate in nor support acts of aggression against Iran'. Traffic through the Strait of Hormuz has all-but halted since conflict broke out over three weeks ago, with the strait in practice closed since Israel and the U.S. attacked Iran on 28 February. On Wednesday morning, a Thai oil tanker was confirmed to be on its way back to Thailand after successfully passing through the Strait of Hormuz. Kathleen Brooks, research director at XTB, said this marked a 'major development' for the oil market and 'opens the door to oil flowing freely around the world once more'.
For now, we think that the bias is to the downside for the oil price, however, it depends on the tone of the news flow.
Donald Trump told aides he was willing to end the military campaign against Iran even if the Strait of Hormuz remained largely closed and leave its reopening for a later date, according to a Wall Street Journal report citing administration officials. On Monday, Donald Trump warned that the U.S. would 'obliterate' Iran's energy plants and oil wells if Tehran did not reopen the Strait of Hormuz. Trump said the U.S. was in 'productive' talks with Iran and declared victory in the Middle East, stating 'This war has been won' and that Iran had been 'wiped out militarily'. The Iranian regime has mocked claims from Donald Trump that talks to end the war were progressing, with Tehran downplaying expectations of any immediate ceasefire, following emerging reports that the U.S. had offered a 15-point ceasefire plan. Following news of the 15-point plan, a spokesperson for the Iranian military hit back in a statement broadcast on Iranian-state television.
Military action has continued over the last 24 hours despite chatter of peace talks, with Donald Trump approving the deployment of an additional 1,000 troops to support the some 50,000 already in the region.
With the long-term constraints to supply due to recent attacks on oil and gas facilities in the Gulf, the oil price is unlikely to fall below $90 per barrel for the longer term, regardless of the outcome of these negotiations.
Kuwait Petroleum Corp said on Tuesday its fully loaded crude oil tanker Al Salmi, capable of carrying up to 2 million barrels, was struck by an alleged Iranian projectile at a Dubai port. Officials warned of potential oil spills in the area after the Al Salmi tanker was struck.
On Saturday, Yemeni forces targeted Israel with missiles, raising fresh concerns about possible disruptions to the Bab el-Mandeb, a key route for ships moving between Asia and Europe via the Suez Canal. Saudi crude exports have been rerouted through the Bab el-Mandeb, with volumes redirected from the Gulf to the Red Sea port of Yanbu reaching 4.658 million barrels a day last week, according to Kpler data.
Analysts said the fall in prices was a temporary reaction to the idea of the war's end, but any meaningful change in prices would not materialise until flows through the Strait of Hormuz were completely reinstated. Iran's closure of the Strait of Hormuz pushed Brent futures up 59% in March, the highest monthly gain ever, while WTI went up 58% this month, the most since May 2020. In the U.S., crude oil stockpiles were expected to have fallen last week, along with distillate and gasoline inventories, according to a preliminary Reuters poll.