Brent Crudes to $107, Hormuz Closed, Maintaining Risk Premium
Oil prices rose sharply on Tuesday (May 12th) as a US-Iran peace deal remained elusive, prolonging the effective closure of the Strait of Hormuz and disrupting global energy shipments. The July Brent contract rose 3.4% to close at $107.77 per barrel, while the June WTI contract rose 4.2% to close at $102.18 per barrel in New York.
These gains came as US President Donald Trump said it was “only a matter of time” before Iran surrendered, a day after he called the fragile ceasefire on “massive life support.” The ceasefire has been in effect since early April and has held despite several flare-ups of violence, including attacks on ships, but traffic in the strait connecting the Persian Gulf to the open sea remains virtually halted.
According to sources familiar with the discussions, Iran responded to Trump’s peace proposal by demanding that the US lift its naval blockade and provide sanctions relief, while maintaining some degree of control over Hormuz traffic. At the same time, tightening global supplies are driving up energy costs, fueling inflation concerns, and adding domestic political pressure on Trump ahead of the November midterm elections. The US released oil from its emergency reserves at a record pace last week.
This issue could potentially influence Trump's meeting with Chinese President Xi Jinping this week, given that China is the largest buyer of Iranian oil and a strategic partner of Tehran. The US Treasury Department also imposed sanctions on more entities on Monday that allegedly assist Iranian oil sales to China.
However, market strength indicators have shown weakness in recent sessions as refiners reduce purchases. The Brent prompt spread is hovering around US$4 per barrel in backwardation, down from nearly US$10 at the start of last month. Looking ahead, the market is also monitoring the EIA's projection that US oil production could rise to a record 14.1 million barrels per day in 2027, while global demand growth this year is expected to be only 200,000 barrels per day (down from the previous estimate of 1.2 million). (arl)*
Source: Newsmaker.id
