Oil extends rally as market focuses on Hormuz disruption
The Strait of Hormuz shutdown is prompting moves to pull stock from global inventories, with market sources saying late on Tuesday that the American Petroleum Institute reported US crude oil inventories fell for a second week.
A view shows oil pump jacks outside Almetyevsk in the Republic of Tatarstan, Russia, Jun 4, 2023. (File photo: Reuters/Alexander Manzyuk)
BEIJING: Oil prices rose on Wednesday (Apr 29), extending a multi-day rally, on media reports the US will extend its blockade of Iranian ports, likely prolonging supply disruptions from the key Middle East producing region.
US President Donald Trump has instructed aides to prepare for an extended blockade of Iran, the Wall Street Journal reported late on Tuesday, citing US officials.
Trump will opt to continue to squeeze Iran's economy and oil exports by preventing shipping to and from its ports, the report said.
Brent crude futures for June rose US$1.11, or 1 per cent, to US$112.37 a barrel at 6.47am GMT (2.47pm, Singapore time), climbing for an eighth day. The June contract expires on Thursday, and the more active July contract was at US$105.32, up 0.88 per cent.
US West Texas Intermediate futures for June rose 51 cents, or 0.51 per cent, to US$100.44 a barrel after gaining 3.7 per cent in the previous session, climbing for seven out of the last eight days.
"The recent rise in oil prices has been driven by the Strait blockade. If Trump is prepared to extend the blockade, supply disruptions would worsen further and continue to push oil prices higher," said Yang An, an analyst at Haitong Futures.
Investors were also assessing the ramifications of the United Arab Emirates' surprise decision to quit OPEC.
Analysts did not expect any major near-term impact on the market by the move.
There must be a resolution in the Persian Gulf that allows for uninhibited energy flows through the Strait of Hormuz once again before UAE's output increase to realise, ING analysts wrote in a note on Wednesday.
They said in the medium to longer term the UAE's decision means more supply for the market, which suggests that the Brent forward curve should move into deeper backwardation.
Despite a ceasefire in the US-Israeli war with Iran, the conflict is deadlocked as both sides seek a formal end to the fighting.
Iran has shut the Strait of Hormuz, a conduit for about 20 per cent of global oil and LNG supplies, and the United States has blockaded Iranian ports.
The US is pressing Iran to end what it says is a nuclear weapons programme, while Iran wants some form of reparations for the latest round of fighting, an easing of economic sanctions and some form of control over the Strait of Hormuz.
The Hormuz shutdown is prompting pulls from global inventories, with market sources saying late on Tuesday that the American Petroleum Institute reported US crude oil inventories fell for a second week.
Crude stocks fell by 1.79 million barrels in the week ended Apr 24, the sources said. Gasoline inventories fell by 8.47 million barrels, while distillate inventories fell by 2.60 million barrels.
