Global oil market on edge again as Middle East tensions flare up

WASHINGTON

The oil market entered another volatile week after renewed tensions between the United States and Iran threatened an already fragile truce.

In early trade the price of Brent crude, the international standard, gained around 4 percent to $78.96 per barrel, while U.S. benchmark crude oil added 4 percent to $74.26 per barrel, fanning fresh concerns that inflation, already elevated because of the war, could force central banks to hike interest rates.

Prices for both types of crude oil recently had slipped back to the levels they were at before the war with Iranbegan, after the two sides set an interim agreement on ending the conflict and ships resumed transporting oil through the Strait of Hormuz.

“One can easily imagine the situation spiralling quite rapidly,” said Fawad Razaqzada, a market analyst at Forex.com. “Of course, rhetoric can soften. We’ve seen that movie before. But for now, traders are forced to assume the worst.”

While the resumption of hostilities has led to another spike in crude prices, IG analyst Fabien Yip said they were unlikely to hit the lofty levels seen following the outbreak of war back in March.

“Oil’s return towards pre-war levels in June reflected markets pricing in a best-case outcome for the fragile U.S.-Iran arrangement,” she wrote, adding that the “re-escalation exposes how fragile that assumption was.”

“Near-term, the risk premium should keep prices supported, though a repeat of the earlier spike appears unlikely, as demand remains slow to recover while stranded-tanker releases and OPEC+ output quota expansion continue to add barrels to an already oversupplied outlook.”