Oil Prices Drop 2% Lower As US-Iran Renew Hostilities
Oil prices slid about 2% on Thursday on worries that rising inflation and other economic concerns could weigh on global oil demand despite continuing supply constraints as the the U.S.-Iran conflict has delayed full reopening of Strait of Hormuz.
About 20% of global oil supplies passed through the strait before the war.
Brent futures fell $1.72, or 2.2%, to settle at $76.30 a barrel. U.S. West Texas Intermediate (WTI) crude fell $1.44, or 2.0%, to settle at $72.08.
On Wednesday, Brent closed at its highest since June 19 and WTI closed at its highest since June 22.
Iranian armed forces launched attacks on U.S. military infrastructure in Gulf states on Thursday following U.S. strikes on Iran’s southern coastal and eastern provinces, further straining a three-week-old ceasefire agreement.
The attacks came on the day that Iran buried its slain Supreme Leader Ayatollah Ali Khamenei at the shrine of Mashhad, the culmination of a week of mass funeral processions and rallies. Khamenei was killed on the first day of the war on February 28. Separately, several explosions were heard in Iran including in Bushehr, where one of Iran’s nuclear plants is located.
“We expect the renewed tension in the Middle East between the U.S. and Iran to be relatively short-lived because both countries are constrained by practical economic and political realities,” Vikas Dwivedi, global energy strategist at Macquarie Group, said in a note.
Qatar, which has often mediated between Washington and its adversaries including Tehran, condemned attacks on commercial shipping and called for a return to diplomacy. Foreign ministers of Turkey and Oman also stressed the need to avoid further military escalation in calls with their Iranian counterpart, Abbas Araqchi.
“After two days of attacks, Iran appears to be on the phone looking to scale back hostilities and possibly return to the negotiating table,” Bob Yawger, director of energy futures at Mizuho, said in a note.
Iran’s Revolutionary Guards Navy said the U.S. attacks and intervention in redirecting shipping through the Strait of Hormuz were disrupting the waterway’s gradual reopening.
“Our estimated oil flows from the Persian Gulf recovered to above 80% of pre-war flows within the first 10 days after Hormuz reopening as trapped tankers rushed to leave the Persian Gulf, but retreated to the low-70s% of normal following recent attacks on tankers,” analysts at U.S. bank Goldman Sachs said in a report.
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