| Commoditiy | Price | Weekly Change | 50day-Ave | 100day-Ave | 200day-Ave |
|---|---|---|---|---|---|
| Brent ($/b) | 89.70 | 6.40 | 88.06 | 94.85 | 79.70 |
| US WTI ($/b) | 83.68 | 5.54 | 85.15 | 89.68 | 74.95 |
| ICE Gasoil ($/MT) | 1,200.75 | 118.50 | 1,041.19 | 1,135.22 | 908.80 |
| Jet CIF NWE ($/MT) | 1,253.38 | 116.63 | 1,110.24 | 1,276.21 | 1,001.75 |
Since the breakdown in talks between the US and Iran the other week, energy markets had already been dragged back into the pre-MoU world. Iran "closed" the Strait, the US reintroduced its naval blockade, Trump talked about bombing "all their power plants" and Iran threatened to attack other export routes. Over this weekend, on Saturday, Iran attacked Kuwaiti energy plants and water infrastructure and killed two US soldiers in an attack on a US base in Jordan. Iranian state media reported that US airstrikes in response to that had hit a electricity and desalination plants and damaged tunnels and bridges, suggesting that Trump was going through with his treat to attack civilian infrastructure. Iranian attacks continued overnight, particularly targeting Bahrain, Kuwait and Jordan, another US soldier was killed and, after reports of a ship ablaze, Iran said that two oil tankers trying to transit the Strait of Hormuz had been immobilized.
Trump’s rhetoric about attacking civilian infrastructure is rather similar to the earlier stages of the war when there were attacks on Iranian steel production and other infrastructure and Iranian strikes on, amongst other things, the Ras Lafan LNG plant in Qatar and the Saudi East–West oil export pipeline to the Red Sea and it looked as if the conflict was moving on to targeting energy and other civilian infrastructure, that could have a much more profound impact on energy markets than even an extended disruption to shipping through the Strait of Hormuz. Fears of that led to the highest oil and gas prices thus far in this conflict. Recent developments suggest that risk is rising again. Perhaps it is the East–West pipeline that Iran has in its sights again when it talked about attacking export routes other than the Strait of Hormuz? If that were struck again it would be hugely consequential for oil markets as this has been a crucial alternative to shipping rude via the Strait. We can see the market reacting to these kinds of risks, not just through the price of crude price, but also in the options market where the cost of buying protection is increasing particularly for high strike call options.
Even if we don’t get an escalation, the issue is that transit of energy through the Strait has largely stopped again and it is not going to be easy for the two sides to get around the negotiating table again after what just happened and even if talks do restart it is hard to see how progress can be now made over the contentious topic of control over the Strait. It looked like a resolution was possible a few weeks ago when the US appeared relaxed about Iran retaining some kind of control, but the US position on that seems to have shifted. So, with the Strait closed, we are back to the issue of relying on inventories that are drawing down.
Brent’s rally up through 90 \$/b this morning, takes it back to the 90 to 100 \$/b range from late May early June and through the 50-day moving average – the 100-day average is around 95 \$/b and that would be the next technical level on the upside. Gasoil, diesel and jet fuel have been particularly affected – gasoil is back over 1200 \$/MT or 160 \$/b – its highest since mid-May. Gas markets have also been strongly affected due to concerns about low inventories and the price of UK gas for delivery this winter has rallied over 140 p/therm – this is the highest we have seen it since the March when the price of winter brief traded over 160 p/therm.
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