| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 116.41 | 16.47 | 81.34 | 71.96 | 69.54 |
| US WTI ($/b) | 102.03 | 13.90 | 74.87 | 66.73 | 65.52 |
| ICE Gasoil ($/MT) | 1,453.50 | 165.75 | 904.44 | 785.94 | 741.01 |
| Jet CIF NWE ($/MT) | 1,709.56 | 224.13 | 1,030.88 | 868.25 | 794.90 |
Tensions in the Middle East have risen once again over the weekend and Brent is higher this morning.
Last weekend, Trump imposed a 48-hour deadline on Iran to reopen the Strait of Hormuz and announced that bombing of Iranian power stations would commence if that deadline was not met, this is something which could have provoked Iran to attack oil and gas infrastructure in other Gulf states. Therefore, there was considerable relief in oil markets when a 5-day extension to that deadline was announced on Monday, then further extended, by another 10-days later in the week. While the US and Iran disagreed publicly over whether an exchange of views via Pakistan acting as an intermediary, could be called negotiations, it is clear such an exchange has been going on. The latest extension of the deadline to 8pm Eastern US time on 6th April is a positive development (negative for oil prices) as it suggests that there could be momentum towards a negotiated resolution to the conflict, but negative (positive for oil prices) because it is an admission that the Strait will stay closed for longer. It should not really have come as a surprise to anyone that a deal was not reached by the end of last week when the previous deadline ran out.
Over the weekend aluminium plants in the UAE and Bahrain experienced significant damage in retaliation attacks against the US/Israeli strikes on Iranian steel infrastructure and separately the Iran-backed Houthi militants in Yemen, fired two missiles at Israel.
The Houthis entering the war is a significant development in the conflict. The great fear for oil markets is that they might start attacking shipping at the southern end of the Red Sea, just as they did in 2023 to 2025. Net exports from producing countries affected by the closure of the Strait of Hormuz are around 16m barrels per day and provide for nearly 20% of the oil demand of the rest of the world. The main alternative route, avoiding the Strait, is Saudi Arabia’s pipeline that traverses the country to a port in the Red Sea, from which it can be shipped to world markets and has sufficient capacity to deliver the majority of Saudi Arabia’s net exports. If the Houthis’ actions do close the southern entrance to the Red Sea, the only option for ships is via the Suez Canal. But this presents two problems; first it is a very long way to ship to Asian markets via the Mediterranean and all the way around Africa and second, the Suez Canal is too narrow for large crude carriers and any already in the Red Sea risk being trapped in there.
The risk of further escalation appears high, even on top of the possibility that US ground troops can be deployed who have now arrived in the Gulf. Trump has talked about the possibility of taking Kharg Island which is home to Iran’s main oil export terminal on which the US struck military sites on the island earlier this month. Another possibility would be to take Qeshm Island on the north side of the Strait of Hormuz, a key location to control on the Strait. Even if there is no escalation and simply the Strait continuing to be largely closed is enough for market conditions to get more challenging and build future problems. Brent has traded over 116 \$/b again this morning, but diesel is around 200 \$/b and jet fuel even higher.
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