Oil prices extended Monday’s surge into Asian trade on Tuesday, with Brent Crude prices hitting a one-month high, as the renewed war risk premium crashed the calmer trade of the past weeks amid renewed U.S.-Iran hostilities and the reinstated U.S. blockade of Iranian oil exports.
Oil prices are now 12% higher than they were on Friday.
In Asian trade on Tuesday, both the Brent and WTI benchmarks were advancing by about 2% to their highest levels in weeks, as the market realized the recovery of traffic through the Strait of Hormuz wasn’t going to go smoothly and was on a constantly rising trend from the levels in mid-June when the U.S. and Iran signed the memorandum of understanding to negotiate a deal.
Brent Crude futures were approaching the $85 per barrel mark on Tuesday, while WTI Crude was attempting a breakout above $80 per barrel. Brent Crude prices were up by 1.91% at $84.89 in Asian trade. The U.S. benchmark had gained 2.02% to $79.72 per barrel.
Both benchmarks on Tuesday extended Monday’s 8% surge in prices, which was triggered by the re-escalation during the weekend and by U.S. President Donald Trump announcing later in the day that the United States would reinstate its blockade on Iran.
The oil market is further confused about what President Trump referred to as a 20% fee for the U.S. becoming “the Guardian of the Hormuz Strait” and “for any and all costs necessary to do the job of providing safety and security to this very volatile section of the World.”
Analysts are also wondering how this could work, or even if it’s serious or remotely feasible.
“There are few details on how this would work—or how serious Trump is about it,” ING’s commodities strategists Warren Patterson and Ewa Manthey wrote in a note early on Tuesday.
Trump’s “idea” would mean that a 20% fee on a supertanker that carries about 2 million barrels of crude at $80 per barrel would be equivalent to around $32 million, or an additional cost of $16 per barrel.
“This is significantly higher than the $1/bbl toll for which Iran has been pushing,” ING’s strategists said.
The oil market started this week with the crude awakening that any recovery of oil flows through the Strait of Hormuz will not be smooth sailing.
By Tsvetana Paraskova for Oilprice.com
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