HOUSTON: Oil prices pared gains to rise about 1 percent on Thursday after Israel said it would start direct negotiations with Lebanon as soon as possible.
Doubts over the durability of a two-week Middle East ceasefire raised concerns about continued restrictions on energy flows through the Strait of Hormuz, sending prices up more than 5 percent earlier in the session. Those gains were later erased after Israeli Prime Minister Benjamin Netanyahu said he had given instructions for Israel to begin peace talks with Lebanon that would also include the disarming of Hezbollah.
Brent crude futures were up 90 cents, or 1 percent at USD95.65 a barrel at 12:58 p.m. ET (1658 GMT), easing from a high of USD99.50 earlier in the session. US West Texas Intermediate (WTI) crude also pared gains, rising USD3 or 3.2 percent at USD97.39, after hitting a session high of USD102.70.
Both benchmarks fell below USD100 per barrel in the previous trading session, with WTI recording its biggest decline since April 2020, on optimism that the ceasefire would result in a reopening of the strait.
Israel, however, bombed more targets in Lebanon on Thursday, putting the ceasefire in jeopardy after its biggest attacks of the war on its neighbour killed more than 250 people and threatened to torpedo Donald Trump’s truce from the outset.
Questions also lingered over the effectiveness of the ceasefire as ship traffic through the Strait of Hormuz fell to well below 10% of normal volumes on Thursday after Iran asserted control by warning vessels to remain within its territorial waters and prices for some physical oil grades hit fresh all-time highs.
The Hormuz waterway connects supply from Gulf producers such as Iraq, Saudi Arabia, Kuwait and Qatar to global markets, and typically carries about 20% of global oil and gas supply.
“Crude futures are taking back some of (Wednesday’s) losses as the Strait of Hormuz remains with just a small fraction of traffic, much less than the market anticipated (Wednesday),” said Dennis Kissler, senior vice president of trading at BOK Financial.
“The ceasefire agreements are in question as Israel had continued to strike Lebanon and Vice President Vance is en route to the Middle East to continue the talks,” Kissler added.
‘Risks won’t disappear overnight’
“Even if shipments resume, the risks won’t disappear overnight,” said Susannah Streeter, chief investment strategist at Wealth Club. “Tankers may be forced to navigate mined waters and a heightened military presence, all of which will keep insurance premiums high and freight costs elevated.” Shippers on Wednesday said they needed clarity on terms of the ceasefire before resuming transit through the Strait of Hormuz. Iran has issued maps to guide ships around mines and showing safe paths for passage, Iranian media reported.
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