Oil Soars on Hormuz Blockade

by Bloomberg
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas

Oil surged after President Trump announced plans to reinstate a blockade on Iranian shipping and impose fees on cargo moving through the Strait of Hormuz.

Oil surged by the most since April after US President Donald Trump said he would reimpose a blockade on Iranian ships transiting the Strait of Hormuz and demand payment for all other cargo moving through the waterway, dashing hopes for a near-term recovery in shipping flows.

West Texas Intermediate futures jumped 9.4% to settle near $78 a barrel, the highest in nearly a month, while Brent closed above $83. The moves added to bullish momentum after the US and Iran traded strikes over the weekend, including attacks on energy infrastructure, all but extinguishing hopes that a mid-June thaw in tensions would lead to a normalization of traffic through Hormuz.

Trump in a social media post said Hormuz “will remain OPEN, with or without Iran,” and said Washington would be the waterway’s “guardian.” He also demanded a 20% reimbursement on all other cargo shipped through the Hormuz. Earlier, he told Fox News that the US would likely attempt to take over the chokepoint.

“Reinstating the blockade is another rung up the escalation ladder, and that’s forcing crude to reprice geopolitical risk,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “The proposed 20% transit fee grabs attention, but the market is still waiting to see how it would actually be implemented, who bears the cost, and how other Gulf producers respond.”

More than 10 people involved in shipping markets, including a handful whose ships have passed through Hormuz in recent weeks, said they were blindsided and bewildered by Trump’s announcement of a potential fee on cargoes crossing the waterway. They said it was too early to know what the plan might look like in practice and how it would shape their decisions about transit.

The White House did not immediately provide other details on Trump’s proposal, including how it would be administered or whether it had been communicated to US allies in the Gulf.

Meanwhile, the Joint Maritime Information Center said US Central Command will begin enforcement of a blockade of all Iranian ports and coastal areas at 4 p.m. ET on Tuesday.

A reinstatement of the blockade may prompt the Islamic Republic to step up attacks on ships seeking to transit Hormuz, analysts warn. Transits through the strait sunk to their lowest level in a month on Sunday, according to ship tracking data compiled by Bloomberg, though many vessels were transiting the waterway without their satellite signals on.

Fresh uncertainty over flows through the world’s most important energy transit point has reinserted a war premium into crude prices, erasing some of the declines seen in June after an interim peace deal helped unleash more supply.

A 20% charge would work out as about $32 million on a supertanker at current oil prices. That’s far higher than the tolls that have been charged by Iran, which people familiar with the situation have said were as much as $2 million. The resulting higher shipping costs would likely be reflected in oil prices.

A spokesperson for The International Maritime Organization, which is the UN’s shipping watchdog, reiterated that the body “stands firmly against charging fees for passage through straits used for international navigation.”

Meanwhile on Monday, Yemen’s Houthis fired a number of ballistic missiles and drones at a Saudi airport, saying the attack was in response to earlier Saudi attacks on Sanaa International Airport, according to a statement from the militant group.

The US on Sunday struck dozens of targets to degrade Iran’s ability to attack international shipping through the waterway. In response, Iran launched assaults on American allies across the Middle East, and Kuwait said an offshore drilling platform had been hit and damaged, the first direct strike on energy infrastructure in weeks.

If the conflict expanded to target key facilities more broadly, oil could head to $100, said Saul Kavonic, senior energy analyst at MST Marquee.

Tehran said Monday that contacts to reduce tensions continue, though the interim peace deal with the US has “undoubtedly entered a crisis phase.” The flare-up risks derailing global efforts to rebuild inventories, the International Energy Agency said on Friday – a reminder of what’s at stake for the global economy if the conflict drags on.

Prior to the interim peace deal, millions of barrels a day of oil were transiting dark. The Joint Maritime Information Center, which liaises between Western navies and merchant shipping, said the southern shipping lane coordinated by Oman remains available.

European natural gas futures also jumped on Monday on fears the renewed conflict would disrupt shipments of liquefied natural gas through the vital conduit.

Oil Prices

• WTI for August delivery climbed 9.4% to settle at $78.14 a barrel in New York.
• Brent for September settlement rose 9.6% to settle at $83.30 a barrel.

by Bloomberg
click here to read this article at Rigzone.com
*this article was not written by Roseland Oil & Gas