Oil prices jumped above $91 per barrel in early trade on Tuesday amid fading hopes for a deal to end the war in the Middle East, with Iran declaring that it will adopt a more offensive stance and the US ruling out extending a ceasefire agreement, triggering more worries about energy supply.
Brent crude futures rose 39 cents, or 0.4%, to $91.26, while US West Texas Intermediate crude futures jumped 51 cents to $85.31 a barrel, extending gains. Both benchmarks gained more than 5% last week after attacks on tankers operated by Abu Dhabi National Oil Company in the Strait of Hormuz and an attack on a Saudi Aramco refinery.
Iran will shift to a "fully offensive" military posture as efforts to negotiate a permanent end to the war with the US have stalled, a senior Iranian official told Reuters on Monday, as Washington ruled out extending a temporary ceasefire agreement.
Peace talk hopes and expectations of resumption of oil tanker traffic through the strategic Strait of Hormuz have now nearly been lost as the parties threaten to extend the conflict that the US and Israel launched with attacks on Iran on February 28.
Iran meanwhile has been negotiating an agreement on managing the strait with Oman and says they are close to a deal. But US President Donald Trump responded to these negotiations with a threat to bomb the Gulf state, a longstanding US security partner.
However, in what appears to be the only ray of hope, media reports claimed that Trump had opened back-channel discussions with the Islamic Revolutionary Guard Corps. "Oil has jumped to start the week as U.S.-Iran relations look increasingly shaky. A deal to reopen the Strait of Hormuz still does not appear to be in sight, and shipping numbers remain at a trickle," Reuters quoted chief market analyst at KCM, Tim Waterer, as saying.
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"The dual chokehold on the Strait of Hormuz and the Bab el-Mandeb remains highly significant. These are not secondary concerns. They sit at the centre of the current supply-risk narrative," KCM's Waterer added.
What lies ahead for oil prices?
JPMorgan estimated that every additional month of disruption could add around $7 to $8 a barrel to Brent prices. If the disruption lasts for three months, the bank expects average monthly Brent prices to reach around $114 a barrel.
Goldman Sachs has also warned that Brent could rise to $120 a barrel if shipping disruptions through the Strait of Hormuz, the world's most important oil transit route, continue. At the same time, Goldman Sachs expects tensions in the Middle East to eventually ease under its base case. The Wall Street bank forecasts Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year. It said risks remained tilted to the upside, as disruptions through the Strait of Hormuz and the Red Sea could last longer than expected.
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(With inputs from agencies)
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