Oil prices pared early losses and rose on Thursday after the US and Iran continued to exchange military strike raising concerns for energy supplies through the Strait of Hormuz.
Brent, the benchmark for two-thirds of the world's oil, which fell by more than 1 per cent earlier during the trading session, reversed losses to rise 0.78 per cent to $78.27 a barrel as of 3.54pm UAE time. West Texas Intermediate, the gauge that tracks US crude, also slipped more than 1 per cent lower, but was trading 0.68 per cent higher at $74.02 a barrel.
Crude prices have been swinging between gains and losses after two days of sharp rise. Brent, which was trading at prewar levels last week, rose by more than 5 per cent on Wednesday after US President Donald Trump said he did not want to engage with Iran and declared the framework peace agreement to be “over”.
His spoke after attacks on a Qatar-owned LNG tanker and two other ships in the Strait of Hormuz, which also prompted US strikes on Iran. Tehran retaliated with missile and drone attacks on Bahrain and Kuwait.
Although the exchange of hostilities continued into Thursday, the scale of the attacks remained limited. Analysts say the two days of continuous military strikes were not expected lead to a resumption of full-scale war, and that the two countries would probably return to negotiations.
Mr Trump has played down the prospects of a renewed all-out war with Iran. However, his administration has revoked a sanctions waiver that had authorised the sale of Iranian oil to maintain economic pressure on Tehran.
The waiver was granted under the interim agreement signed late last month, and gave Iran 60 days to sell its oil without being subject to punitive measures. Its revocation means Tehran will not be able to sell the oil that has already been shipped and is now at sea.
The move could compound global supply concerns, but Ms Ozkardeskaya said several ships had already crossed the Strait of Hormuz and were “delivering oil to key markets”.
“A few days ago, Saudi Arabia significantly cut the price of its oil for Asian buyers to ensure that millions of barrels would be absorbed quickly,” she added.
Brent, which hit an intraday high of $126 a barrel in March, fell last week below its prewar level of $72.87 amid easing regional tension and concerns of a supply surplus.
The recent hostilities have sparked concerns about continued flow of trade through the Strait of Hormuz. The waterway is vital to the global energy supply, especially markets in Europe and Asia. Before the war, a fifth of global oil and gas supplies crossed the chokepoint.
“Going forward, the trajectory of the US-Iran conflict, the security of shipping through the Strait of Hormuz and the scale of any disruption to Gulf oil exports will remain the key drivers of oil prices,” said Soojin Kim, Dubai-based analyst at Japanese lender MUFG.
Any further escalation is “likely to restore a larger geopolitical risk premium”, she added.
