The crude oil market has become increasingly sensitive to current news headlines over the past month.
Experts suggest that if peace negotiations between the United States and Iran do not progress, concerns about supply disruptions will intensify, further opening up potential upside for oil prices.
Oil prices continued to rise on Thursday due to the deadlock in peace discussions between Iran and the United States, as well as both countries maintaining trade restrictions in the Strait of Hormuz.
Brent crossed the $100 per barrel mark in the previous session and continued its advance on Thursday.
“The market needs to reassess its expectations,” said Warren Patterson, head of commodity strategy at ING Economics, in a note.
In addition, Iran’s seizure of two ships attempting to pass through the Strait of Hormuz suggests that disruptions to shipments are likely to continue.
At the time of writing, the Brent contract was trading at $103.25 per barrel, up 1.3%, while West Texas Intermediate was trading at $94.25 per barrel, up 1.4%.
“Additional upside potential”
“As hopes fade, the reality of supply disruptions will come into play, offering additional upside potential for prices,” added Patterson.
Patterson believes that the market will increasingly ignore recent headlines driving price movements, unless significant progress is made in peace negotiations.
Despite President Donald Trump’s extension of a ceasefire following a request by Pakistani mediators, Iran and the United States continue to restrict ship transit in the Strait of Hormuz.
This crucial passage previously accounted for around 20% of the world’s daily oil supply before the onset of the conflict on February 28.
Iran strengthened its control over this critical passage by seizing two ships in the waterway on Wednesday.
Furthermore, the blockade of Iranian commercial navigation by the US Navy, maintained by Trump, remains in effect.
A complete ceasefire, according to Iranian Parliament Speaker and lead negotiator Mohammad Baqer Qalibaf, would only be justifiable if this blockade were simultaneously lifted.
According to maritime and security sources on Wednesday, the US military intercepted at least three Iranian-flagged oil tankers in Asian waters, diverting them from routes near India, Malaysia, and Sri Lanka.
“Destruction of demand”
“Concurrently, we continue to observe a growing destruction of demand in the oil market, a trend that will intensify as supply disruptions in the Persian Gulf persist,” stated Patterson.
Amid significant price increases and a tightening of jet fuel supply, airlines continue to announce flight cancellations.
The jet fuel market in Europe is particularly vulnerable to Middle Eastern developments.
While the region mainly sources its jet fuel from the Persian Gulf, Europe is currently focusing on finding alternative sources, along with utilizing existing stocks intensively.
In recent weeks, jet fuel stocks in the ARA region have declined significantly, now at their lowest level since the COVID-19 pandemic began.
The record price of jet fuel – nearly $1,800 per ton in early April – reflects this trend, with prices more than doubling since the start of the conflict in Iran.
“Increase in American exports”
As global buyers seek alternative sources, the United States is exporting historically high volumes of oil and refined products, as per ongoing data from the Energy Information Administration.
Total exports of oil and refined products increased by 137,000 barrels per day in the most recent week, reaching a total of 12.88 million bpd.
Refined product flows have been the main driver of the recent export increase, rising by 564,000 bpd from week to week.
This rise pushed total exports above 8 million bpd for the first time.
“While the US market has been relatively insulated from supply disruptions in the Middle East, prolonged instability tightens conditions as global buyers increasingly turn to American supplies,” said ING’s Patterson.
Despite a 1.93 million barrel increase in American commercial crude oil stocks last week, total crude oil stocks decreased by 2.21 million barrels once Strategic Petroleum Reserve (SPR) releases were taken into account.
Furthermore, stronger exports of refined products led to stock declines, with gasoline and diesel inventories falling by 4.57 million barrels and 3.43 million barrels respectively.
