Kolkata: After crude oil prices crashed by more than 10% on Monday after US president Donald Trump’s announcement of cessation of hospitalities for five days, Brent prices crept up again on Tuesday morning in early trade as Iran contradicted his claim of “very good and productive conversations” with Iran that led to the virtual ceasefire on part of the US. Brent futures rose $1.06, or 1.1%, to touch $101 a barrel, while West Texas Intermediate rose by $1.58, or 1.8%, to reach $89.71,m agencies reported.
The rise in prices was attributed to fresh fears of supply constraints with Iran even describing Trump’s announcement as “fake news”. On Monday, Trump’s statement indicated a progress towards the war that crippled energy supplies in many parts of the globe holding major economies hostage to the war in West Asia that began on Feb 28 with the US and Israel raining missiles on Teheran that killed Iran’s supreme leader, a few of his family members and a number of senior military officials of the country.
Equity markets celebrate
Equity markets in the US celebrated Trump’s announcement that pointed to a veritable ceasefire. Dow Jones Industrial Average ended the trade up 631.00 points, or 1.38%, while S&P 500 gained 76.25 points or 1.15%. Nasdaq Composite ended Monday’s session 1.38% up, while Russell 2000 surged 2.3%. This morning Japan’s crucial Nikkei 225 was trading 0.92% up. However, it also needs to be seen how the leaders in Teheran do now that will eventually decide the course of the events.
Market finding its foot in the mud
“By shelving the plan to strike Iranian power plants for five days, the U.S. effectively sucked much of the ‘war premium’ from the oil price,” Tim Waterer, chief market analyst at KCM Trade was quoted by Reuters as saying. “Today’s moderate bounce is just the market finding its footing in the mud. Traders are aware that while the missiles are on hold, the Strait of Hormuz is still far from a clear waterway,” he added.
Strait of Hormuz in focus
In order to send crude prices significantly below the $100 mark, there has to be developments leading to the resumption of vessel movement through the Strait of Hormuz. Iran has prevented the movement of ships through this narrow waterway, choking off a fifth of the world’s maritime crude oil movements. After Trump’s announcement, Tehran said it was an attempt to manipulate financial markets. Iran’s Revolutionary Guards reportedly launched fresh attacks on US targets.
“Even with a possible decrease in tensions after (Monday’s) announcement from President Trump, we expect a price floor of $85–$90 and a natural drift back to the $110 range until the Strait of Hormuz is restored,” Australia-based global financial services firm Macquarie mentioned in a note. It also sounded the caution that if the Strait of Hormuz remains shut until the end of April, Brent prices could create new all-time peaks of $150 per barrel.