Oil prices were volatile on Monday (Jun 16), after surging 7 per cent on Friday, as renewed strikes by Israel and Iran over the weekend increased concerns that the battle could widen across the region and significantly disrupt oil exports from the Middle East.
Brent crude futures were up 6 cents, or 0.08 per cent, to US$74.29 a barrel by 0742 GMT, while US West Texas Intermediate crude futures gained 21 cents or 0.29 per cent, to US$73.19. They had surged more than US$4 a barrel earlier in the session and also fell into negative territory briefly.
Both benchmarks settled 7 per cent higher on Friday, having jumped more than 13 per cent during the session to their highest levels since January.
Iranian missiles struck Israel’s Tel Aviv and the port city of Haifa on Monday, destroying homes and fuelling concerns among world leaders at this week’s G7 meeting that the battle between the two old enemies could lead to a broader regional conflict.
An exchange of strikes between Israel and Iran on Sunday resulted in civilian casualties, with both militaries urging civilians on the opposing side to take precautions against further strikes.
The latest developments have stoked concerns about disruptions to the Strait of Hormuz, a vital shipping passage.
About a fifth of the world’s total oil consumption, or some 18 to 19 million barrels per day (bpd) of oil, condensate and fuel, passes through the strait.
Buying was driven by the ongoing Israel-Iran conflict, with no resolution in sight,” said Toshitaka Tazawa, an analyst at Fujitomi Securities.
“But as seen last Friday, some selling emerged on concerns of overreaction,” he said.
STRAIT OF HORMUZ IN FOCUS
While markets are watching for potential disruptions to Iranian oil production due to Israel’s strikes on energy facilities, heightened fears over a Strait of Hormuz blockade could sharply lift prices, Tazawa added.
Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), currently produces around 3.3 million bpd and exports more than 2 million bpd of oil and fuel.
The spare capacity of OPEC and its allies, including Russia, to pump more oil to offset any disruption is roughly equivalent to Iran’s output, according to analysts and OPEC watchers.
“If Iranian crude exports are disrupted, Chinese refiners, the sole buyers of Iranian barrels, would need to seek alternative grades from other Middle Eastern countries and Russian crudes,” said Richard Joswick, head of near-term oil analysis at S&P Global Commodity Insights, in a note.
“This could also boost freight rates and tanker insurance premiums, narrow the Brent-Dubai spread, and hurt refinery margins, particularly in Asia,” Joswick added.
China’s crude oil throughput declined by 1.8 per cent in May from a year earlier to the lowest level since August, official data showed on Monday, as maintenance at both state-owned and independent refineries curbed operations.
US President Donald Trump said on Sunday he hopes Israel and Iran can broker a ceasefire, but added that sometimes countries have to fight it out first. Trump said the US would continue to support Israel but declined to say if he asked the US ally to pause its strikes on Iran.
