SINGAPORE – Oil advanced on June 22 after US President Donald Trump threatened strikes on Iran if Hezbollah keeps attacking Israel, raising concerns about progress for peace talks between Washington and Tehran.
Brent crude climbed 1.4 per cent to US$8.72 a barrel as at 7.25am Singapore time, while West Texas Intermediate surged 2.8 per cent to US$78.75.
Negotiations in Switzerland got off to a rocky start on June 21 after Iranian media reported the Islamic Republic halted talks after the latest Trump threat, but people familiar said they were continuing. Tehran has accused Israel of violating a truce in Lebanon.
The high-level meeting in the Swiss resort of Bürgenstock is happening at the start of a 60-day window for negotiations, after Trump signed a memorandum of understanding last week which began the process of deescalation. Despite Iran claiming to have closed the Strait of Hormuz again, millions of barrels of oil continued to flow through the waterway over the weekend.
Other energy commodities also gained on June 22, with benchmark European natural gas futures advancing as much 3.9 per cent. A fifth of global liquefied natural gas was exported through Hormuz prior to the start of the war in late February. US gasoline futures climbed along with diesel prices.
Speaking to Fox News on June 21, Trump said he told Iranian leaders directly that if they close Hormuz, “You won’t even make it back” to Iran, using an expletive. A resolution to the fighting in Lebanon will be decisive for the success of the talks in Switzerland, according to an official familiar with the discussions.
The war in the Middle East has choked off supply in a region responsible for a third of the world’s oil production. Crude futures have come off in recent weeks – although prices remain higher than pre-war levels – after global refiners found temporary workarounds, and as the prospect of an end to the conflict fueled optimism over a rapid return to normal.
A peace deal would in theory unleash a gush of supply where there’s less demand for now, especially given a slump in purchases by top importer China. About 80 million barrels of crude are set to suddenly hit the market should Hormuz fully reopen, threatening to leave refiners swamped.
Meanwhile, Persian Gulf producers are gearing for a production ramp-up, with Kuwait canceling earlier force majeure notices. Abu Dhabi National Oil told customers to resume loading supply from inside the Persian Gulf, while selling spot crude in a series of tenders.
More than 11,000 Brent contracts across the curve traded in the opening 10 minutes of the session on Monday, marking a more active than usual start. The global benchmark’s prompt timespread also slightly widened in backwardation, although it’s narrowed significantly since early April. BLOOMBERG
