Oil prices rose by more than 1% during trading on Thursday, recouping some of their previous sharp losses, as investors continued to monitor developments in peace talks between the United States and Iran, while a supply crisis and declining US inventories provided additional support for prices.
Brent crude futures rose by $1.27, or 1.21%, to $106.29 a barrel.
West Texas Intermediate crude futures also rose by $1.29, or 1.31%, to $99.55 a barrel.
This rise came after the two benchmark crude oils experienced a sharp drop of more than 5.6% during Wednesday's session, reaching their lowest levels in more than a week, following statements by US President Donald Trump in which he said that negotiations with Iran had reached their final stages, but he then threatened the possibility of carrying out new attacks if Tehran did not agree to a peace agreement.
Markets are reacting to Iranian headlines
ING Bank analysts said the oil market remains highly sensitive to any news related to Iran, as traders continue to build bets on the prospect of progress in talks between Washington and Tehran.
Analysts added that markets have experienced similar situations several times before, but ultimately ended in disappointment, reflecting the level of volatility and uncertainty dominating trading.
Nevertheless, the bank expects Brent crude to average around $104 a barrel during the current quarter, given the continued geopolitical risks and supply disruptions.
In response, Iran warned against any new attacks and announced new steps to strengthen its control over the vital Strait of Hormuz, which has remained largely closed despite the fact that before the war it carried shipments of oil and liquefied natural gas that accounted for about 20% of global energy consumption.
Iran tightens its grip on the Strait of Hormuz
Tehran announced on Wednesday the establishment of a new body called the Persian Gulf Strait Authority, confirming the imposition of what it described as a controlled maritime zone within the Strait of Hormuz.
Iran had effectively closed the strait in response to the US and Israeli attacks that sparked the war on February 28, and although the fighting subsided after the ceasefire in April, shipping traffic remained severely restricted.
Meanwhile, the United States continues to impose a naval blockade on the Iranian coast, further complicating the situation and deepening the global supply crisis.
The loss of supplies from the Middle East, one of the world’s most important oil-producing regions, has prompted many countries to draw rapidly from their commercial and strategic reserves, raising growing concerns about the depletion of these reserves.
Historic withdrawal from the US reserve
The U.S. Energy Information Administration announced Wednesday that the United States withdrew nearly 10 million barrels from its strategic petroleum reserve last week, the largest ever withdrawal from this stockpile.
This move reflects the scale of the pressures facing global energy markets as supply disruptions continue.
Data from the administration also showed that U.S. crude oil inventories fell more than expected last week, a clear indication of continued supply shortages in the U.S. market.
Mingyu Gao, senior energy and chemicals researcher at China Futures, said that declining oil inventories will make it difficult for oil prices to remain at low levels for an extended period.
He added that closing the Strait of Hormuz would cause global inventories of refined products and crude oil to fall below their seasonal lows of the past five years by late May and late June.
Supply crisis redraws the market map
Current oil movements reflect the level of concern gripping markets about the future of global supplies, especially with ongoing tensions in the Middle East and no final solution to the crisis yet in sight.
Despite cautious optimism about the US-Iranian talks, markets recognize that any potential agreement will not immediately restore oil flows to pre-war levels.
The continued restrictions on shipping in the Strait of Hormuz also add a dangerous element to the supply and demand equation, at a time when markets are already relying on intensive withdrawals from strategic reserves to cover the current shortfall.
Therefore, a growing number of analysts believe that oil prices may remain high and volatile in the coming period, even if a political settlement is reached, due to the long time the market may need to restore its natural balance.
