Brent rises as renewed Strait of Hormuz tensions reignite supply fears
The front-month ICE Brent contract has gained by $5.75/bbl on the day, to trade at $78.70/bbl at 09.00 GMT.
IMAGE: Getty Images
Upward pressure:
Brent prices have strengthened after Iran reportedly attacked three commercial vessels near the Strait of Hormuz on Tuesday, triggering US military retaliation and intensifying tensions across the region.
US President Donald Trump said the memorandum of understanding aimed at ending the conflict with Iran was “over,” according to Reuters.
The renewed hostilities have revived concerns over potential disruptions to Middle East oil supplies.
“Re-escalation in the Persian Gulf has reignited supply concerns, pushing oil prices higher amid questions about the direction of US-Iran peace talks,” two analysts from ING Bank said.
“Crude oil futures surged higher amid renewed attacks in the Strait of Hormuz,” ANZ Bank’s senior commodity strategist Daniel Hynes echoed.
Adding to the bullish sentiment, the US Department of the Treasury (DoT) revoked a sanctions waiver that had temporarily permitted transactions involving Iranian-origin crude oil and petrochemical products following the renewed attacks in and around the Strait of Hormuz. The move has also provided additional support to Brent futures.
“US launches biggest strikes on Iran since signing of MoU, reinstates oil sanctions. Washington says moves in response to Iranian strikes on ships in Hormuz,” VANDA Insights’ founder Vandana Hari commented.
Meanwhile, US crude oil inventories declined by 399,000 bbls in the week ending 3 July, according to estimates from the American Petroleum Institute (API) cited by Trading Economics.
A draw in US crude inventories is generally interpreted as a sign of stronger oil demand and tends to support higher Brent prices.
Downward pressure:
Brent crude prices faced some downward pressure after Baker Hughes reported an increase in US oil drilling activity.
The number of active US oil rigs rose by five from the previous week, to 445.
The US oil rig count is widely regarded as a leading indicator of future crude oil production, as it reflects current and expected drilling activity across the country's shale sector.
By Tuhin Roy
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