Brent crude oil prices exhibited volatility on Wednesday after a significant increase in the prior session. The situation was influenced by U.S. strikes in southern Iran and the mixed signals from President Donald Trump regarding negotiations between Tehran and Washington, which contributed to a cautious sentiment among traders. On Tuesday, Iran’s Islamic Revolutionary Guard Corps announced its intention to respond to any violations of the ceasefire, following the identification and engagement of U.S. drones and an F-35 fighter jet that had entered Iranian airspace. Brent crude was observed trading close to $100 per barrel. U.S. crude declined by 0.89% to $93.05 a barrel, whereas Brent decreased by 0.52% to $99.06 per barrel following a nearly 4% increase in the prior session. WTI for July delivery decreased by 0.9%, settling at $93.09 per barrel.
The U.S. military executed self-defence strikes in southern Iran on Tuesday, focusing on vessels purportedly trying to deploy mines alongside missile launch sites. U.S. Central Command indicated that the operation was focused on safeguarding American troops against threats from Iranian forces. In a move that introduces further unpredictability to the ongoing negotiations, Trump announced via social media on Monday that he has encouraged Saudi Arabia, Qatar, Pakistan, Turkey, Egypt, and Jordan to participate in the Abraham Accords, aimed at establishing normalised diplomatic relations between Arab nations and Israel. Swiss multinational investment bank UBS stated on Friday that the global oil market is experiencing heightened pressure due to a continued decline in inventories, exacerbated by disruptions to shipments via the Strait of Hormuz.
According to the bank, global oil inventories decreased by a total of 246 million barrels during March and April, with cumulative production losses potentially exceeding 1 billion barrels by the end of May. Experts suggest that even with a potential agreement, it may take several months for shipping operations in the strait to completely rebound and for the damaged energy infrastructure to be repaired. Earlier this month, Saudi Aramco CEO Amin Nasser cautioned that disruptions in Hormuz could postpone stability in global oil markets until 2027, with nearly 100 million barrels of oil supply per week potentially impacted. Saudi Aramco holds the position as the largest oil producer globally.
Morgan Stanley indicated that the oil market is presently in “a race against time,” cautioning that the elements holding back crude prices from increasing further could diminish if the Strait of Hormuz stays closed until June. The broking indicated that increased U.S. crude exports and reduced demand from China have, to this point, mitigated the impact of the supply shock. However, it warned that an extended closure of Hormuz could further constrict global supplies if disruptions persist beyond the capacity that the U.S. and China can manage comfortably.