Oil prices experienced an uptick on Thursday as investors expressed concerns that supply from the pivotal Middle East production area may not completely recover. This apprehension is fueled by skepticism regarding the durability of the two-week ceasefire between the U.S. and Iran, coupled with ongoing restrictions in the vital Strait of Hormuz. Brent crude futures increased by $2.6, representing a 2.74% rise, reaching $97.35 per barrel at 0048. Meanwhile, U.S. West Texas Intermediate crude saw an uptick of $3.02, or 3.2%, bringing it to $97.43 per barrel. Both benchmark prices fell below $100 per barrel in the previous trading session, with WTI experiencing its most significant decline since April 2020 amid expectations that the ceasefire concluding the conflict between the U.S. and Israel against Iran would facilitate the reopening of the Strait of Hormuz.
The waterway facilitates the transportation of supply from Gulf producers, including Iraq, Saudi Arabia, Kuwait, and Qatar, to global markets, and generally accounts for approximately 20% of the oil supply. Nonetheless, uncertainties regarding the sustainability of the ceasefire persist as Israel continued its military actions in Lebanon on Wednesday, prompting Iran to characterize it as “unreasonable” to advance discussions aimed at establishing a lasting peace agreement. On Wednesday, shippers expressed the necessity for greater clarity regarding the terms of the ceasefire prior to resuming transit through the Strait of Hormuz. Iran has released maps intended to assist vessels in navigating around mines in the waterway, establishing designated safe routes for transit in collaboration with the Revolutionary Guards, according to reports from Iranian media.
Transit through the Strait of Hormuz remains fraught with risk. According to analysts at Standard Chartered, “It remains at Iran’s discretion.” Logistical disconnects, security concerns, heightened insurance costs, and operational limitations indicate that minimal additional energy is expected to be delivered through the Strait of Hormuz in the forthcoming two weeks. Regional oil facilities continue to face significant risks, as Iran has targeted sites in neighboring countries following the ceasefire. This includes an attack on a pipeline in Saudi Arabia, which has served as a crucial route to circumvent the blockaded Strait of Hormuz, as reported by an oil industry source.
Kuwait, Bahrain, and the UAE have also documented instances of missile and drone strikes. Haitong Futures expressed skepticism regarding the durability of the ceasefire, noting that Israel’s military actions against Hezbollah in Lebanon have become a significant issue. Additionally, assaults on energy infrastructure throughout the Middle East continue unabated, and contradictory statements regarding the Strait of Hormuz remain prevalent.