Oil futures ticked up in early trading after a new wave of attacks on Saudi energy infrastructure and amid continued concern about flows through the Strait of Hormuz. Traders also weighed the uncertain impact of a fragile ceasefire arrangement negotiated between Iran and the United States.
Brent crude futures were trading 83 cents, or 0.87%, higher at $96.75 a barrel as of 0100 GMT. West Texas Intermediate futures were up $1.04, or 1.06%, at $98.91 a barrel at the same time.
Market commentators pointed to fading initial optimism following a recent ceasefire announcement. "The initial wave of relief following President Trump’s two-week ceasefire announcement has quickly given way to underlying doubts," IG market analyst Tony Sycamore said in a note.
Iran and the U.S. agreed on Tuesday to a two-week ceasefire that was brokered by Pakistan, but the ceasefire has not stopped all hostilities - fighting continued after the announcement. Observers are closely monitoring tanker movements through the Strait of Hormuz for signs of ramped-up shipping activity ahead of further talks scheduled in Pakistan.
"All eyes remain firmly on tanker tracker flows through the Strait of Hormuz for any signs of increased activity ahead of peace talks scheduled in Pakistan on Friday," Sycamore added.
Analysts expect Pakistan to press for a more durable agreement during those negotiations, though some say Islamabad may lack the leverage required to secure a reopening of the strategically vital waterway. A Tehran official told Reuters on April 7 that Iran wants to charge fees for vessels transiting the strait as part of a peace deal - a proposal that has drawn opposition from Western leaders and the U.N. shipping agency.
The conflict has effectively choked off the artery used to move large volumes of oil and natural gas, in a crisis that began on February 28 when the U.S. and Israel launched air strikes on Iran. The disruption to flows is prompting price scenario analysis from industry consultants.
John Paisie, president of energy consultants Stratas Advisors, said Brent prices could reach $190 a barrel if current reduced flows through the Strait of Hormuz persist. "If Iran allows increasing flows the price of oil will be more moderated, but still well above pre-war levels," he said.
Recent strikes on Saudi Arabia's production infrastructure have taken a material toll on output and pipeline throughput. The Saudi Press Agency reported on Thursday that attacks have cut the kingdom's output by about 600,000 barrels per day (bpd) and reduced throughput on the East-West Pipeline by 700,000 bpd.
JPMorgan analysts characterized the damage as a change in the market narrative - shifting from intermittent disruptions to what they called "a measurable supply shock" in a research note. Over nearly six weeks of conflict, some 50 infrastructure assets in the Gulf have been hit by drone and missile strikes, and roughly 2.4 million bpd of oil refining capacity have been taken offline, JPMorgan estimated.
Those combined factors - physical damage to facilities, curtailed Saudi output and constrained transit through the Strait of Hormuz - are underpinning the recent uptick in prices as market participants reassess supply risk in the near term.
Summary
Oil prices rose in early trading after attacks on Saudi energy infrastructure and because the Strait of Hormuz remains effectively closed, despite a brokered two-week ceasefire between Iran and the U.S. Reports indicate Saudi output and pipeline throughput have been substantially reduced, and analysts warn the situation represents a measurable supply shock.
Key points
- Brent rose to $96.75 a barrel and WTI to $98.91 a barrel as of 0100 GMT.
- Saudi Arabia reported a loss of about 600,000 bpd of output and a 700,000 bpd reduction in East-West Pipeline throughput.
- Energy and shipping sectors are affected by infrastructure damage and the effective closure of the Strait of Hormuz, with implications for refining and transport.
Risks and uncertainties
- Ceasefire fragility - fighting continued after a two-week ceasefire agreement, raising questions about near-term stability and shipping safety.
- Strait of Hormuz closure - continued reduced flows through the strait pose sustained supply risks to global oil and gas markets.
- Infrastructure damage - attacks have damaged dozens of Gulf assets and taken 2.4 million bpd of refining capacity offline, increasing the chance of further price volatility.