Crude oil prices rose on Tuesday as renewed fighting between the United States and Iran in the Middle East heightened concerns over possible supply disruptions from the key oil-producing region.
Brent crude futures gained 56 cents, or 0.6 per cent, to USD 91.05 a barrel at 0044 GMT. US West Texas Intermediate (WTI) crude futures rose 83 cents, or 1 per cent, to USD 86.59 a barrel.
The gains came after both benchmarks advanced sharply in the previous session. Brent crude settled 2.7 per cent higher on Monday after touching its highest level since August 25, while WTI ended 2.8 per cent higher and briefly hit its highest level since August 21.
Strait of Hormuz remains key focus
The latest rise in oil prices followed renewed military confrontation between the US and Iran, raising concerns that the conflict could disrupt crude supplies and shipping through the Strait of Hormuz.
The waterway is a critical route for global energy supplies, carrying about one-fifth of global oil supplies before the conflict erupted in late February.
Iran shut the Strait of Hormuz after the US and Israel attacked the country on February 28. Efforts by mediators, including Qatar and Oman, to broker an agreement to reopen the waterway have so far made little progress.
Trump threatens further strikes against Iran
US President Donald Trump on Monday threatened further strikes against Iran following the first exchange of direct attacks between the two countries in about a month.
Trump also said oil continues to move through the Strait of Hormuz with assistance from the US Navy, which he said had helped vessels pass through the waterway.
“We have the Strait of Hormuz in extremely good shape,” Trump told reporters at the Oval Office, adding that the US Navy had been assisting ships passing through the strait.
Trump said about 30 ships had been averaging passage through the waterway each night and that significant quantities of oil were continuing to move out. He attributed the continued flow of crude to the reason oil prices had not risen as sharply as expected.
Shipping risks add to oil market concerns
The comments came amid heightened uncertainty over the security of oil tankers and other vessels using the strategic waterway.
Market participants are also monitoring reports of possible incidents involving vessels in and around the Strait of Hormuz. Iranian media reported that a tanker had struck two mines in the strait and that a bulk carrier was seized near Bandar Abbas. However, the US military said no vessel had hit a mine.
The conflicting reports have added to concerns over the safety of shipping in the region and could keep risk premiums elevated in crude oil prices.
According to Shrikant Chouhan, Head of Equity Research at Kotak Securities, crude oil continues to move higher following the latest escalation in tensions.
“Crude, meanwhile, continues to spiral higher,” Chouhan said, noting that Brent had crossed USD 91 in Asian trade following the weekend’s escalation.
He said the market was also watching a tight petroleum products market, with fresh strikes on Russian refineries pushing refining margins to new highs.
SPR, Venezuela deal and crude outlook
Another factor being closely monitored by the market is the US Strategic Petroleum Reserve (SPR), which is near its lowest level in decades.
Trump had also announced a deal with Venezuela on Friday to control oil reserves in the country, which he later said would help replenish the US Strategic Petroleum Reserve.
The US SPR is currently near a 44-year low, adding another layer of concern for the global oil market in the event of a prolonged supply disruption.
Chouhan said several physical market indicators were pointing towards genuine tightness in crude markets. These include the elevated Brent-WTI spread, steep backwardation between cash and 12-month Brent prices and elevated product prices.
He said Brent crude remains in an uptrend, with resistance seen at USD 92-USD 93 a barrel, while support is placed at USD 90 and then USD 88.
For India, higher crude oil prices could add to concerns over the country’s import bill and inflationary pressures as the nation meets a large part of its crude oil requirement through imports.
The direction of crude prices will now depend largely on developments in the US-Iran conflict, the security of the Strait of Hormuz and efforts to restore normal shipping through the waterway.
