Oil prices spiked once again in early Asian trade on Thursday after reports of fresh U.S. strikes on Iranian military targets reignited fears that the most recent round of peace talks could give way to further escalation.
At the time of writing, WTI was trading at $90.51, up 2.06% on the session, while Brent crude had climbed 2.17% to trade at $96.34.
The jump comes after both benchmarks dropped by more than 7% this week as traders became increasingly optimistic over a potential agreement that could restore traffic through the Strait of Hormuz.
Those hopes are now fading after reports that the U.S. military carried out strikes on southern Iran and shot down four Iranian attack drones. A U.S. official from Central Command claimed the action was defensive as the ground control station hit was about to launch a fifth drone.
The latest military action followed comments from President Trump on Wednesday that suggested he was in no rush to sign an agreement. The president said that while a good deal could be made right now, “if it’s not a great deal, we’re not making it.”
At the same conference, Trump said that the U.S. was not “talking about any easing of sanctions or giving money”. As usual, his comments included a threat to “finish them off” if Iran failed to meet his terms.
One of the reasons oil traders had embraced the possibility of a diplomatic breakthrough this week was signals from Iranian media that a potential ceasefire extension was nearing, with suggestions it would include sanctions relief and the release of frozen Iranian assets. Now, Trump’s latest comments, as well as divisions inside Tehran, appear to be complicating that thesis.
According to reporting by the FT, Iranian ultra-hardliners are now openly attacking negotiators for considering compromises with Washington, insisting Tehran maintain full authority over the Strait of Hormuz and refuse any concessions on uranium enrichment.
As well as the renewed geopolitical risk, bullish inventory data is adding to the upward pressure on oil prices and highlighting the crisis in physical markets.
On Wednesday evening, the American Petroleum Institute reported that U.S. crude stockpiles fell by 2.8 million barrels last week, marking the sixth consecutive weekly decline. Official EIA data is due later on Thursday due to a one-day delay tied to the Memorial Day holiday.
For now, the ceasefire survives, and talks are continuing, but the risk of a major price spike will remain until a durable peace agreement is signed and a long-term solution to ensuring traffic through the Strait of Hormuz is found.
By Josh Owens for Oilprice.com
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