Oil retreats after hitting four-year high on concern of US-Iran war escalation

Global oil prices jumped to a four-year high of more than $126 a barrel on Thursday on concerns that the US-Iran war could worsen and lead to a protracted Middle East supply disruption that could hurt global economic growth, but later retreated.

The market had moved higher earlier after Axios, citing unidentified sources, reported on Wednesday that US President Donald Trump is slated to receive a briefing on Thursday on plans for a series of military strikes on Iran in hopes it will return to negotiations on its nuclear programme.

The price of Brent has doubled since the US-Israeli attack on Iran began on February 28 and the U.S. benchmark West Texas Intermediate crude is up around 90% due to the effective closure of the Strait of Hormuz, through which about a fifth of the world’s oil and liquefied natural gas transits.
The oil price gains risk a renewed spike in global inflation and higher pump prices in the U.S. ahead of midterm elections later this year. Oil, gas, and their refined byproducts are critical for fuelling cars, trucks and planes, powering homes and industry and producing plastics and fertilizers.

”For those who do not think Brent prices have the potential to reach $150 a barrel, you ought to look away now,” said John Evans of oil broker PVM.

Global oil benchmark Brent crude futures rose as high as $126.41 a barrel, the loftiest since March 9, 2022, but by 1230 GMT were down $4.13, or 3.5%, to $113.90. The prompt contract for June delivery expires on Thursday. The more active July contract was at $108.83, down $1.61, or 1.5%.

WTI crude futures were down $1.96, or 1.8%, at $104.92. The contract reached $110.93 earlier, the highest since April 7.

Both benchmarks are on track for their fourth month of gains, reflecting fears that the Iran conflict could choke global oil supplies for months to come.

The drop in prices from intraday highs did not have an obvious catalyst.

Tamas Varga, also of PVM, said the decline did not look related to a specific development and reflected the heightened volatility in the market since the Iran war started.

Two large sell orders for June Brent traded shortly before 0930 GMT, traders noted, and LSEG data showed. Other analysts said that prices can be volatile ahead of contract expiries.

Brent was the biggest mover in wider European financial markets, with a jump in the yen prompting speculation about foreign exchange intervention.

Trump called a ceasefire in the war earlier this month, but also imposed a U.S. blockade on Iranian ports.

Talks to resolve the conflict, which has killed thousands and caused what the International Energy Agency says is the world’s biggest oil disruption ever, have deadlocked, with the U.S. insisting on discussing Iran’s alleged nuclear weapons programme and Iran demanding some control over the strait and reparations for damage from the war.

”Prospects for any near-term resolution to the Iran conflict or a reopening of the Strait of Hormuz remain dim,” IG market analyst Tony Sycamore said in a note.

At least seven ships – a fraction of the usual traffic – have crossed the Strait of Hormuz in the past 24 hours, shipping data showed on Thursday.

Three of those ships were dry bulk carriers and one container ship, with two bitumen tankers also leaving, according to Kpler ship-tracking data and satellite analysis from SynMax.

Prior to the war between 125 and 140 vessels travelled the waterway daily.

Closure of the strait outweighs the long-term implications of the potential waning influence of OPEC+ following the exit of the United Arab Emirates from the group, OANDA senior market analyst Kelvin Wong said.

The UAE said on Tuesday it would quit the Organization of Petroleum Exporting Countries after nearly 60 years as a member. The exit will complicate the efforts of OPEC+ – a wider group that includes OPEC plus Russia and other allies – to balance the market through adjustments to supply, sources said.

Even so, OPEC+ is likely to agree a small increase of around 188,000 barrels per day in its oil output quotas on Sunday, sources told Reuters on Wednesday.

The UAE’s exit from OPEC and OPEC+ would allow it to raise production after exports restart, analysts say. However, this is unlikely to have much impact on market fundamentals for now.

Analysts say destruction in the demand for oil due to the high prices may be the most likely factor to alleviate the current tight supply situation.

ING analysts see about 1.6 million bpd of demand lost as consumers and end-users simply stop using oil products because of high prices.

Though significant, ”it’s clearly not enough to fill the supply gap we are currently facing,” the analysts said in a note.

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