Oil prices fell during trading on Wednesday, after they had earlier risen to their highest levels in more than a month. Traders weighed risks of supply disruptions following the overnight back-and-forth strikes between the United States and Iran, against signs that crude supplies are continuing to reach markets.
The figures
Brent crude futures fell by 57 cents (0.60%) to $94.08 a barrel, while U.S. West Texas Intermediate crude futures dropped by 72 cents (0.80%) to $89.50 a barrel. Earlier, both benchmarks had risen to their highest levels since July 24, with Brent touching $97.04 and WTI reaching $92.29 during the session.
Ole Hansen, head of commodity strategy at Saxo Bank, said the oil market faces "two-way risks": any announcement of an agreement or progress in negotiations could cause prices to drop sharply, while any further escalation would undermine prospects for a peace deal, warning that prices could move by about $5 in either direction with each new development.
The Strait of Hormuz at the heart of the crisis
The United States and Iran resumed military confrontation today, Wednesday, after their most intense exchange of fire in weeks, amid U.S. threats of more devastating strikes. Iran’s Islamic Revolutionary Guard Corps said the U.S. attacks would impose further restrictions on navigation through the Strait of Hormuz—the passage through which about one-fifth of global oil consumption was carried before the conflict—after Iran effectively closed it to commercial shipping. The Revolutionary Guard also announced that two oil tankers collided with naval mines while attempting to cross the strait.
Oil flow continues despite the risks
Hamad Hussein, chief climate and commodities economist at Capital Economics, said that ship-to-ship oil transfers in recent weeks have helped sustain exports of part of the crude via the strait, easing some pressure on the market, while warning that these flows are highly vulnerable to disruption and that a further escalation of the conflict could push Brent above $100 a barrel. U.S. Energy Secretary Chris Wright said 17 million barrels passed through the strait on Monday, the highest level since the war with Iran reduced oil flows through it.
A parallel development in Ukraine
In a separate development, Russia launched what it described as a "massive" missile and drone attack on energy facilities in the Odessa region in southern Ukraine, adding another layer of uncertainty to global energy markets already reeling from the fallout of the US-Iran conflict.