Oil Swings With Lebanon Tensions and Hormuz Risks in Focus
(Bloomberg) -- Oil fluctuated as fresh fighting in Lebanon and attacks on vessels in the Strait of Hormuz muddied the outlook for a deal to end the US-Iran war.
Brent traded below $89 a barrel, after gaining 6% last week, while West Texas Intermediate was near $82. Lebanon saw its deadliest day of fighting in months on Sunday, as Israel struck Tehran-backed Hezbollah. Wider negotiations between Iran and the US appeared to be at a standstill.
More ships came under attack in Hormuz late last week, including vessels affiliated with Abu Dhabi National Oil Co. Still, Middle Eastern producers are pressing ahead with shuttling large volumes of crude out of the Gulf, with flows running higher than market estimates of 4 million barrels a day, according to people with knowledge of the shipments.
Brent has rallied by more than 45% this year, with Washington’s war against Tehran now in its sixth month, including a full naval blockade of the Islamic Republic’s ports. President Donald Trump has signaled the administration intends to hit Iran’s economy even harder, and that he didn’t care whether the conflict ended before the November midterm elections. Treasury Secretary Scott Bessent said the new curbs could be unveiled this week.
“The threat of unprecedented US measures to economically isolate Iran, an indefinite naval blockade, and renewed tanker attacks raises the risk of further supply disruption,” said Charu Chanana, chief investment strategist at Saxo Markets. “However, weak demand and continued covert Gulf exports are keeping the rally contained.”
Tehran has been preparing for a potentially broader confrontation, the Wall Street Journal reported, citing Iranian and Arab officials. Authorities have given the Islamic Revolutionary Guard Corps greater influence over the military, installed hard-line veterans in key posts, accelerated missile and drone production, and strengthened coordination with allied militias across the region, the newspaper said.
‘God-Given’ Asset
“We see $100 a barrel being threatened if US-Iran violence escalates and transits through the strait halt sharply,” Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia, wrote in a note. “But overall, an oversupply bias that pushes Brent oil futures towards $80 a barrel makes sense.”
Iran and Oman, meanwhile, appeared to be edging closer to a deal on how Hormuz should be managed. The US wasn’t party to the talks, and is unlikely to agree to terms that don’t restore free passage along the route that used to handle a fifth of the world’s oil and liquefied natural gas flows each day.
The waterway is a “God-given geopolitical asset for the Iranian nation and this leverage will never return to its former state,” Iran’s semi-official Fars news agency cited Army Commander-in-Chief Amir Hatami as saying on Sunday. “We will protect this capacity with all our power.”
Some Asian refiners have been ramping up their crude buying as attacks on chokepoints, which also include threats to shipping in the Red and Black seas, affect supplies. Processors in India are seeking cargoes for as far ahead as November delivery, trying to lock in barrels sooner than usual.
Elsewhere, Russia is facing fuel shortages after Ukraine resumed near-daily attacks on oil refineries. That’s prompted gasoline rationing in at least two regions, as well as export curbs for refined products.
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