‘it’s Over’: Oil Markets Back On Edge After Us And Iran Shred Ceasefire

Oil prices vaulted higher on Wednesday, rebounding after more than a month of decline as President Donald Trump declared that the ceasefire with Iran was “over,” keeping the global energy markets on alert for new supply disruptions.

Trump’s musing about reimposing a naval blockade on Iran and threatening more strikes threw a curveball at an oil market that had all but erased the gains seen when the U.S. and Israel’s attacks against Iran in February led to the Strait of Hormuz closing to oil tanker traffic. U.S. oil prices briefly rose past $75 per barrel mid-day Wednesday, up more than $6 from Tuesday before hostilities flared again, before easing lower before market close.

“To me, I think it’s over,” Trump told reporters on the sidelines of the NATO summit in Ankara, Turkey, referring to the ceasefire agreement the U.S. and Iran signed last month. He said negotiations would continue but called them a “waste of time.”

The latest upheaval could put Republicans’ stomachs in knots. GOP candidates had been hoping a ceasefire would stabilize fuel prices ahead of the midterm elections. A restart of the war would imperil candidates in tough races as the GOP works to protect its majorities in Washington.

Gasoline prices will respond to the renewed hostilities, said Andy Lipow, head of oil market consulting firm Lipow Oil Associates.

“You can rest assured gasoline prices are going to start ticking up,” he said.

Still, some market analysts are saying they’re not expecting prices to climb much higher. The upward momentum on oil prices all but petered out Wednesday afternoon.

That’s likely because hostilities between the U.S. and Iran are now in their fifth month and skirmishes were to be expected in the dicey world of Middle East diplomacy, said Ben May, head of global macroeconomic research at Oxford Economics.

“The deep distrust between the U.S. and Iran meant bumps in the road were inevitable, and this feels eerily similar to the trade negotiations between the U.S. and China during President Donald Trump’s first term, which had numerous flare-ups followed by de-escalation,” May said in an analyst note. “Given this, it was always going to be hard to have strong conviction about reopening the Strait of Hormuz and the path for oil prices."

During a press conference Wednesday, Trump said Iran not having a nuclear weapon is more important than increases in oil prices.

“Now, they’ll be up a little bit, and this will end very quickly,” Trump said. “We have a tremendous … we have an oil glut right now, because we got all of those boats out of the strait. And it’s going to drop.”

Asked about the impact of ending the ceasefire on oil prices, a White House spokesperson referred to Trump’s comments.

The developments come after some signs of recovery had started to emerge from the reopening of the strait. Tanker traffic appeared to be progressing faster than many analysts expected. An average of just over 30 vessels transited the strait each day last week, though the flows slowed over the weekend as tensions began to flare, according to Lloyd’s List Intelligence, which monitors global shipping. That was still down from the historical average of 138 vessels per day before the war.

U.S. commercial crude inventories rose by 3 million barrels last week, according to data released Wednesday by the Energy Information Administration, though they remained below average for this time of year.

The fact that oil production rose and tanker transit picked up quicker after the June ceasefire may also be tempering industry fears about how severely the Hormuz closure could impact the market in the long term. The oil production cartel OPEC pledged to increase its output while Saudi Arabia this week cut the price of the crude it sells to Asia.

“Nothing can be ruled out, but ... the market’s admirable adaptability in weathering the original crisis, and the $56 decline in the price of Brent during May and June, must be kept in mind when revising oil price forecasts,” Tamas Varga, oil market analyst at PVM Oil Associates, said in a client note. “The stage has been set for a considerable supply surplus as oil has begun to flow with relatively few interruptions.”

Still, other market watchers were warning that renewed attacks could delay any true return to normal. Research firm ClearView Energy Partners said in a client note that even “confined and episodic” skirmishes like Tuesday’s could limit shippers’ willingness to transit the Strait of Hormuz.

“Moreover, successful Iranian retaliation could introduce new delays to Gulf operators’ plans for repairs and restoration of pre-war output,” ClearView added.

It also noted that the Trump administration provided an “unusually brisk timeframe” to reimpose sanctions, which will limit the amount of Iranian barrels hitting the global market.

“Even if Trump were to extend the window (or reverses himself), the on-again, off-again nature of U.S. strictures could limit buyers of Iranian barrels to those with high risk tolerances (and substantial appetites for discounts),” ClearView said.