Oil Prices Surge as Hopes of a US-Iran Deal Dissipate
WASHINGTON-- Oil prices edged higher Monday after a 60-day period set aside for U.S.-Iran negotiations expired without a lasting agreement to end the conflict, renewing concerns about how long disruptions to crude shipments through the Strait of Hormuz could persist.
Brent crude, the international benchmark, rose 0.38% to $88.85 a barrel. West Texas Intermediate, the U.S. benchmark, was little changed at $82.42 a barrel.
Brent has gained roughly $10 a barrel from its early-August lows as diplomatic efforts to resolve the conflict have stalled. The increase reflects growing uncertainty among traders over whether a negotiated settlement can restore normal shipping through the Strait of Hormuz, one of the world’s most important energy corridors.
Mohit Kumar, chief European economist at investment bank Jefferies, said the diplomatic impasse could be difficult to resolve because the two sides have sharply different positions over control of the waterway.
“We do not see an easy way out of the current situation,” Kumar wrote in a note to clients.
Iran, he said, is unlikely to surrender control over the Strait of Hormuz, while the United States would be unlikely to accept an arrangement that allows Tehran to impose tolls or otherwise control the movement of commercial vessels through the passage.
The uncertainty is significant for global energy markets. About one-fifth of the world’s oil and liquefied natural gas typically moves through the Strait, which connects the Persian Gulf with the Gulf of Oman and serves as a critical route for energy exports from the Middle East.
Still, oil prices have remained below $100 a barrel for several months despite the disruption. Analysts say several factors have helped prevent the conflict from producing an even larger shock to global crude supplies.
Kumar said actual shipping activity through the Strait may be greater than official estimates indicate, suggesting that some oil and other energy products are continuing to move through the waterway despite the prolonged tensions.
Other developments have also helped cushion the market. Alternative export routes have allowed some Gulf producers to move crude without relying entirely on Hormuz, while weaker Chinese oil demand has reduced pressure on global supplies. Increased U.S. oil production has added further supply, and withdrawals from stockpiles around the world have provided another buffer.
“The global supply-demand situation is not that bad and the markets can withstand a few weeks of Strait closure,” Kumar said.
The expiration of the U.S.-Iran negotiating window, however, leaves traders watching closely for signs of further escalation or renewed diplomacy. A prolonged disruption to the Strait could put additional upward pressure on crude prices, particularly if commercial traffic falls substantially or major oil producers face difficulties getting exports to international markets.
For now, the market response has been measured rather than dramatic. But with negotiations at an apparent standstill and the future of the Strait remaining uncertain, energy traders are likely to remain highly sensitive to developments involving the conflict and any new efforts to reopen the vital shipping route.