Oil prices rose back over the $100 mark as investors weighed a potential return to active conflict between the United States and Iran, a prospect that could further tighten crude oil and refined product supplies.
Bloomberg reported that Brent for December rose 4.4 percent to settle above $102 a barrel. Futures on Thursday climbed to intraday highs after the Wall Street Journal reported that the US is sending a third aircraft carrier strike group to the Middle East.
That development comes after Wall Street analysts and traders said this week that crude flows from the Middle East were closing in on pre-war levels.
Iran, however, appeared to have loaded no crude oil onto tankers in September, the latest indication of a US naval blockade’s effectiveness in severing the Islamic Republic’s access to energy markets.
Investors are wary that an increasingly cornered Iran could respond by intensifying the conflict.
“The increase in flows remains highly vulnerable to escalation. I’d also describe the market as being structurally tight given the relatively low level of inventories after six months or so of drawdowns. That puts a floor under prices,” said Hamad Hussain, a climate and commodities economist at Capital Economics.
Prices for Brent also adjusted higher following the expiration of the commodity’s November contract on Wednesday, as traders rolled over their positions and prices recalibrated to the dangers in the Middle East.
“We remain bullish,” said Al Salazar, head of Oil and Gas Research at industry consultant, Enverus.
The deployment could indicate “a ground operation or could be helping to support the increased traffic through the strait. If it’s the latter, as a trader I would wonder how sustainable it is.”
Physical market indicators continue to flash constraints. Oil traders last week paid record premiums to secure immediate supply at the biggest US storage hub. In Europe, Dated Brent – a critical physical-market indicator – has also been trading at a wide premium to futures.
Crude prices were higher for a third month in September, as Washington and Tehran failed to make headway toward a lasting peace agreement that would fully reopen the Strait of Hormuz.
Meanwhile, supply buffers have weakened following eight months of upheaval in the Middle East as governments have drawn on strategic crude stockpiles.
Flows have remained in focus as traders seek to assess how many barrels continue to exit Hormuz.
Working out what Persian Gulf producers are sending to the market has been complicated by covert transits to avoid ongoing attacks on vessels, as well as strikes on Saudi Arabia’s East-West pipeline, Bloomberg reported.
Goldman Sachs Group Inc. estimates about 23 million barrels a day of oil left the Middle East in the last week, both out of Hormuz and through other export routes like the Red Sea. That’s in line with last year’s average.
Traders are also contending with uncertainty across fuel markets. Chinese exporters have canceled some oil-product cargoes slated for export in October, as Asia’s top consumer prioritizes domestic supply.
The diesel market has been roiled by both the turmoil in the Persian Gulf and Ukrainian attacks on Russian refineries. A potential ban on exports of the fuel is being considered in the US, which has become Europe’s top supplier.
The US has told Germany and France to release emergency diesel inventories to help ease global fuel prices or face a potential curb, Reuters reported, citing people familiar with the matter.
