Oil rises above US$100 again as fragile relief rally sours

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SINGAPORE – Oil prices rose in choppy trade on March 24 as US President Donald Trump’s postponement of the bombing of Iran’s power grid proved no panacea for investors worried about the ramifications of the Middle East war.

Mr Trump added five days to his ultimatum for Iran to reopen the Strait of Hormuz within 48 hours, citing “productive” talks with Tehran. But much uncertainty remained as Iran denied that it had engaged in negotiations with the US, Israel kept up attacks and the world continues to grapple with an energy shock.

“The underlying situation is still incredibly fragile or flammable,” said IG market analyst Tony Sycamore.

“It doesn’t seem like all of the parties are on the same page... Trump can talk all he likes, but the Strait of Hormuz is closed and it’s staying closed until all the Iranians get on the same page, and that’s where we’ve got a problem.”

Brent crude, the global oil benchmark, climbed 3.8 per cent to above US$103.77 a barrel as at 10.54am Singapore time, after plunging 11 per cent on March 23. US crude benchmark West Texas Intermediate gained 3.7 per cent to US$91.42.

Iranian Deputy Speaker of Parliament Ali Nikzad said there would be no negotiations with Washington, and the Strait of Hormuz would not be returned to its previous state, the semi-official Fars news agency reported.

US allies in the Persian Gulf were inching towards contributing to the fight, The Wall Street Journal reported. Among them, Saudi Crown Prince Mohammed bin Salman is now eager to re-establish deterrence and is close to a decision to join the attacks, the newspaper said, citing people familiar with the situation.

Brent has rallied more than 40 per cent in March on concern that the hostilities between the US, Israel and Iran that have rocked the Middle East will trigger a global energy crunch, boosting inflation. The war has all but halted transit through the Strait of Hormuz, forcing Persian Gulf producers to scale back millions of barrels of daily oil output. Petroleum products such as diesel and jet fuel have rallied even harder than crude, squeezing consumers and rattling governments.

“If this shock lasts longer, this extreme tightness that’s now concentrated in the Middle East and Asia would spread,” Goldman Sachs Group co-head of global commodities research Daan Struyven told Bloomberg TV. Eventually, demand destruction would be required to rebalance supply, he said.

Iran is reviewing correspondence it received from the US via mediators, CBS reported, citing a senior Iranian Foreign Ministry official. Meanwhile, gas facilities were hit in Isfahan, central Iran, the Fars news agency reported. 

“It is unclear how far back-channel talks have progressed or if the IRGC is in any mood to settle at this stage when they remain in firm control of the Strait of Hormuz,” RBC Capital Markets analysts said in a note, referring to the Islamic Revolutionary Guard Corps. “Ships, not soundbites, will likely be what ultimately matters for physical markets.”

A trickle of ships has successfully exited the Persian Gulf in recent days, even as the bulk of traffic through the critical artery remains effectively stalled. 

At the weekend, Mr Trump had threatened to bomb Iran’s energy infrastructure unless Hormuz were fully opened within 48 hours. His decision to pause the strikes was seen as an effort to manage oil prices by people familiar with the diplomatic talks, and Mr Trump on March 23 acknowledged the link. “The price of oil will drop like a rock as soon as the deal is done,” he said.

The US President also suggested Washington and Tehran could jointly control Hormuz. The narrow conduit – which links the Persian Gulf to global markets – could be open very soon “if it works”, he said.

The repeated shifts in messaging from the US leader have left investors fatigued, dampening trading volumes as investors sift through a near-constant stream of sometimes contradictory headlines. Four of the six largest-ever moves seen in Brent futures have occurred since the conflict began.

“A negotiated outcome may be the best of a series of bad options that President Trump has,” said Mr Will Todman, senior fellow in the Middle East Program at the Center for Strategic and International Studies. However, Iran will “go into these talks with great scepticism, fearing that President Trump is simply running down the clock until more military assets arrive in the region”. BLOOMBERG, REUTERS