Oil prices rise after sharp decline amid escalation fears in Iran war

SadaNews - Oil prices resumed their rise after a sharp decline on Monday, supported by fears of other countries being drawn into the war in the Middle East.

The price of the "Brent" blend neared the level of $103 per barrel, after dropping by 11% on Monday following President Donald Trump's postponement of a threat to target Iranian energy facilities for five days. Iran denied conducting negotiations, while Israel continued its attacks. The price of the U.S. benchmark West Texas Intermediate crude rose by nearly 3%.

The Wall Street Journal reported, citing insiders, that U.S. allies in the Arabian Gulf are approaching participation in the war, adding that among them is Saudi Crown Prince Mohammed bin Salman, who is keen to re-establish deterrence and is nearing a decision to participate in the attacks.

The "Brent" blend has risen by about 40% this month due to fears that fighting between the U.S., Israel, and Iran, which has shaken the Middle East, could lead to a global energy crisis, further fueling inflation.

The war has nearly halted the movement through the Strait of Hormuz, forcing Gulf producers to cut millions of barrels from daily oil production. Oil products like diesel and jet fuel have risen at a faster pace than crude, putting pressure on consumers and raising concerns for governments.

The market watches ships, not statements

It remains unclear whether negotiations have taken place between the two sides, but the market is monitoring the movement of tankers in the vital strait more than it is interested in statements from either side.

In recent days, several ships have left the Arabian Gulf, even as most of the maritime traffic through this vital artery remains effectively halted. The first supertanker transporting Iraqi crude through the strait has been observed since its near-total closure, according to data collected by Bloomberg.

Analysts at RBC Capital Markets, including Helima Croft, wrote in a note that it is unclear whether there has been any progress in talks between the two sides and whether the "Revolutionary Guard" is in a position to negotiate, as it effectively controls the strait de facto.

However, they added that "ships, not statements, will ultimately matter to the actual markets," as reported by Bloomberg.

An attempt to control oil prices

Trump had threatened over the weekend to bomb Iran's energy infrastructure unless the Strait of Hormuz is fully opened within 48 hours.

Those familiar with diplomatic talks viewed his decision to halt strikes as an effort to manage oil prices, a point acknowledged by Trump on Monday. He said, "Oil prices will drop like a rock as soon as a deal is made."

The U.S. president also suggested the possibility that Washington and Tehran could jointly control the Strait of Hormuz. He said this passage could open very soon "if things work out."

Bloomberg quoted Will Todman, a senior fellow at the Middle East Program at the Center for Strategic and International Studies, as saying that "the negotiating outcome may be the best of the bad options available to President Trump."

However, he added that Iran will enter these talks "with a great deal of skepticism, fearing that President Trump is simply stalling until more military assets arrive in the region."

Investors feel fatigued

The repeated shifts in the U.S. president's messaging have exhausted investors, putting pressure on trading volumes as they assess a near-constant stream of sometimes contradictory headlines.

Dan Stroeven, co-head of global commodity research at Goldman Sachs, told Bloomberg TV: "If this shock persists any longer, this acute tightness, currently focused in the Middle East and Asia, will spread to the rest of the world."

In the latest trades, the price of Brent blend for May futures rose by 2.9% to $102.81 per barrel at 7:01 AM in London, while West Texas Intermediate futures rose 3% to trade at $90.75 per barrel.