Oil Prices Rise Again, Hormuz and Iran Make the Market Uncomfortable
JAKARTA - Oil prices rose more than 1 percent again on Thursday. Markets are still waiting for the direction of the United States and Iran's peace talks, while tight supplies and falling US oil stocks have kept prices high.
Launching an Arab News report, Thursday, May 21, Brent crude oil prices rose 1.27 US dollars or 1.21 percent to 106.29 US dollars per barrel at 09.18 Saudi time. US West Texas Intermediate or WTI oil rose 1.29 US dollars or 1.31 percent to 99.55 US dollars per barrel.
The increase came a day after the two oil benchmarks fell more than 5.6 percent. The decline came after US President Donald Trump said talks with Iran were in their final stages.
However, Trump also threatened further attacks if Tehran did not agree to a peace deal. The threat made the market cautious again.
ING analysts, a Dutch bank and financial services institution, said the oil market is still very sensitive to news related to Iran. Market participants, according to them, still have high hopes for reports on progress in US-Iranian talks.
"We have been in this situation many times, which ultimately leads to disappointment," ING analysts wrote. They expect the average Brent price to be $104 per barrel this quarter.
Iran had previously warned of further attacks and announced steps to strengthen control over the Strait of Hormuz. The route is important because before the war it was the route for the shipment of oil and liquefied natural gas equivalent to about 20 percent of global consumption.
On Wednesday, Iran announced the formation of a "Persian Gulf Strait Authority" and said there would be a "controlled maritime zone" in the Strait of Hormuz.
Arab News reported that Iran effectively closed the strait in response to the US and Israeli attacks that triggered the war on February 28. Most of the fighting has stopped since the April ceasefire. However, Iran still restricts traffic through Hormuz, while the US blocks Iran's coastline.
Supply disruptions from major producing regions in the Middle East have forced a number of countries to withdraw commercial and strategic oil reserves faster. The concern is that reserves can be drained.
The US Energy Information Administration or EIA said the United States withdrew nearly 10 million barrels of oil from the Strategic Petroleum Reserve, the government's strategic oil reserve, last week. It was the largest withdrawal in recorded history.
EIA data also showed U.S. crude stocks fell more than expected last week.
"The decline in oil inventories will make it difficult for oil prices to stay low," said Mingyu Gao, senior energy and chemical researcher at China Futures.
According to Gao, with the Strait of Hormuz blocked, global supplies of refined products and land crude oil are expected to fall below the lowest level for the same period in the past five years at the end of May and the end of June.