Oil prices jump over 6% as Iran-US tensions escalate
What's the story
Oil prices witnessed a major jump of over 6% on Monday, following a sharp decline of over 9% in the previous session. The spike comes as tensions around the Strait of Hormuz continue to escalate. The latest round of accusations from both the US and Iran, each blaming the other for violating ceasefire by targeting ships over the weekend, has added fuel to the fire.
Supply disruption
Trump accuses Iran of lying, warns of renewed airstrikes
US President Donald Trump announced on Sunday that American forces had seized an Iranian cargo ship trying to breach its blockade. In retaliation, Iran has refused to participate in a second round of peace talks, despite Trump's warning of renewed airstrikes. The ongoing conflict has severely disrupted global oil supply, with the Strait of Hormuz accounting for nearly one-fifth before the war.
Market response
Oil prices highly sensitive to geopolitical developments
The market remains highly sensitive to geopolitical developments, with oil prices reacting to changing signals from both sides rather than any clear improvement in supply conditions. The sporadic movement of vessels through the strait underscores the uncertainty surrounding this key energy chokepoint. Even if tensions ease, experts say a full recovery in oil flows could take several months.
Control measures
Brokerage firm Macquarie sees oil prices remaining supported
On Saturday, Iran tightened its grip over the Strait of Hormuz in response to the US blockade, reportedly firing at several vessels and declaring the route closed. This comes just hours after it had announced a temporary reopening during a 10-day ceasefire. Brokerage firm Macquarie has said that even if tensions cool, oil prices are likely to remain supported in the $85-$90 range with a gradual move toward $110 as supply through this critical chokepoint improves.
Price projections
Analysts warn prolonged closure could send crude prices soaring
Analysts widely believe crude oil is entering a phase of structurally higher prices. The ceasefire is seen as temporary, and it may take several months for prices to return to pre-war levels of $70-$75. In the short term, analysts expect prices to remain between $80-$85 on the downside and $95-$100 on the upside. Nuvama Institutional Equities has warned that prolonged closure of this key waterway could send crude prices into the $110-$150 range.