Oil Set for Weekly Gains as Iran Conflict Resolution Stalls

Oil is on track for a weekly rise as the crucial Strait of Hormuz remains tightly shut, with efforts to resolve the ongoing conflict at a stalemate and disruptions affecting global markets expected to continue.

Brent crude has climbed to about $107 per barrel, with futures increasing around 6% this week. West Texas Intermediate is trading above $102. President Donald Trump has made mixed statements regarding Hormuz, first telling Fox News that the US doesn’t need the waterway to be open, but then later asserting, “we want the straits open” while with Chinese leader Xi Jinping in Beijing.

The prolonged conflict has drastically cut global oil inventories, and the market will continue to be “severely undersupplied” until October, even if fighting ceases next month, as highlighted by the International Energy Agency this week. Data released by the US on Tuesday showed how the conflict is reigniting inflation, intensifying domestic pressure on Trump ahead of the midterm elections in November.

Trump and Xi are expected to meet again following their Thursday summit, where topics included the Iran conflict and the Strait of Hormuz, according to a White House official. The US leader noted that Xi is interested in purchasing additional American oil, although China’s official summary did not mention energy as a discussion point, instead indicating that Middle Eastern matters were addressed.

A ceasefire has been in place since early April, despite several incidents, but Washington and Tehran appear to be making minimal progress in resolving their differences. Trump recently remarked that the truce is on “massive life support,” while condemning the Iranian reaction to his proposal to end the conflict.

“I believe the near-term price outlook leans more bullish as we continue to observe declines in crude oil and fuel inventories,” stated Dennis Kissler, senior vice president for trading at BOK Financial Securities Inc. “Given the significant gap in current agreements, an escalation of tensions is increasingly likely.”

A US naval blockade of Iran’s ports remains in effect, and the waters in the region continue to pose dangers for mariners. A commercial vessel was seized by unauthorized individuals near the strait’s entrance on Thursday and taken into Iranian waters.

Prices:
Brent for July delivery rose 1.3% to $107.05 a barrel at 1:10 p.m. in Singapore. WTI for June delivery was 1.4% higher at $102.63 a barrel.

Since the onset of the conflict, only a limited number of tankers have departed the Persian Gulf, severely curtailing vital energy supplies, including natural gas, to global consumers. Trading house Vitol Group is offering Iraqi crude—outside of Hormuz—to buyers, suggesting that some shipments may have successfully exited the gulf.

Crude and fuel flows through the Strait of Hormuz have declined by nearly 6 million barrels per day in the first quarter since hostilities began in late February, according to the Energy Information Administration this week.

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