Oil prices surged back above $100 a barrel in early Asian trade following the collapse of U.S.-Iran negotiations and Trump’s announcement that the U.S. would blockade the Strait of Hormuz.
At the time of writing, West Texas Intermediate was trading at $105.30 per barrel, up 9.04%, while Brent had risen 8.55% to trade at $103.30. Both benchmarks remain roughly $10 below last week’s peaks before the ceasefire was announced and prices tumbled.
While the failure of negotiations in Pakistan over the weekend is helping to push crude prices higher, it is President Trump’s announcement of a blockade of the Strait of Hormuz that sent prices surging.
The blockade of maritime traffic entering and exiting Iranian ports is set to begin on Monday, at 10 am Eastern Time, according to CENTCOM, and will only target vessels transiting the Strait to and from Iranian ports.
If this blockade is successfully implemented, it would remove an estimated 1.5 to 1.7 million barrels per day of Iranian supply from the market. That would compound major supply issues in the region, with Saudi Arabia announcing last week that Iranian attacks had cut its production capacity by 600,000 bpd and temporarily reduced its East-West pipeline flows by roughly 700,000 bpd. The Kingdom has since restored those flows.
Iranian officials have already warned that any military presence near the Strait would be treated as a violation of the ceasefire, suggesting we could see a return of attacks on energy infrastructure in the region this week.
As for the potential of a continued ceasefire and eventually a peace agreement, President Trump suggested in his latest post on social media that the major sticking point in talks is nuclear enrichment. The President claimed the country was “unwilling to give up its nuclear ambitions” and went on to announce the blockade.
In a very tight market, continued escalation and delay are likely to send oil prices climbing higher, while markets are sure to become increasingly immune to announcements without any tangible outcomes.
By Josh Owens for Oilprice.com
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