The stalemate in the U.S.-Iran conflict has continued for a further week with no clear resolutions on either side, Standard Chartered Bank Head of Energy Research Emily Ashford said in a report sent to Rigzone late Tuesday.
“Both sides appear to think that they have the leverage,” Ashford said in the report.
The Energy Research Head highlighted in the report that, in Standard Chartered’s view, “it still appears that the U.S. is keen to recommence direct negotiations, although Iran is reluctant when it feels threatened, and the social media messaging from the U.S. alternates from apathy to hyperbole on a daily basis”.
“For now, the most active diplomacy is through exchanges and back channels, and via intermediaries,” Ashford pointed out.
Ashford noted that the April 8 ceasefire is technically still in force but warned that it remains fragile.
“Messages remain mixed; a third U.S. carrier strike group has arrived in the region and a second Marine Expeditionary Unit is also enroute,” Ashford said.
In the report, Ashford warned that every additional day of stalemate represents further lost barrels in the market, inventory drawdowns, and, for Iran, while the U.S. secondary blockade remains in place, increasingly constrained storage. This may escalate production shut-ins, according to Ashford.
“Storage at Jask, which is Iran’s key export terminal on the Gulf of Oman, is reportedly at an all time high,” the analyst warned.
“Although not west of the Strait of Hormuz, it still falls under the remit of the U.S. blockade,” Ashford highlighted.
The Energy Research Head stated in the report that it is likely that the first stage towards a resolution would be a simultaneous lifting of the U.S. blockade and Iranian restrictions on vessel transit through the Strait of Hormuz.
“U.S. Secretary of State Marco Rubio said on 27 April that the U.S. does not view it as acceptable for Iran to permit which vessels can transit, because ‘that’s not opening the Strait’,” Ashford pointed out.
“If these differences can be resolved, then allowing free transit would be a clear trust-building step that might allow more complex negotiations about Iran’s nuclear capabilities to follow,” Ashford added.
“Even though logistical lags, shut-in production and the intangible scarring effect of the uncertainty of transit over the past two months will not allow the rapid normalization of physical supplies, we would expect a positive market reaction, taking Brent crude prices back towards $90-95 per barrel in the near term,” Ashford continued.
For now, the Standard Chartered Bank analyst said crude oil markets “have reacted with a gradual grind higher once more”.
“Brent blend for June delivery settled at $108.23 per barrel on 27 April; a week on week rise of $12.75 per barrel (13.35 percent) and the highest settlement price for 20 days,” Ashford highlighted.
“Dated Brent (the primary physical crude benchmark for crude oil in the North Sea) settled just $0.27 per barrel higher at $108.50 per barrel, tightening the premium of physical to paper markets. The Brent-WTI spread has widened towards $12 per barrel,” Ashford added.
Rigzone has contacted the White House and the Iranian ministry of foreign affairs for comment on the Standard Chartered report. At the time of writing, neither have responded to Rigzone.
In another report sent to Rigzone on Tuesday by the JPM Commodities Research team, analysts at J.P. Morgan said the estimated value of open interest in energy markets increased by nine percent, or $74 billion, week on week, to $873 billion.
“The increase was broad-based across crude oil, petroleum products and natural gas markets, and was primarily driven by higher prices across the energy complex, as the front-month crude oil prices increased by 12-15 percent and international natural gas prices increased by 10-15 percent, while the U.S. Henry Hub prices declined by six percent,” the analysts stated in the report.
“We estimate the global oil supply declined by about 14 million barrels per day in April, which was met by seven million barrels per day of inventory drawdowns and 4.3 million barrels per day of demand losses, and expect prices to continue to move higher to induce more demand reduction as inventories reach their limits,” they added.
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