HOUSTON: Oil prices settled almost 3 percent higher on Monday after US President Donald Trump said the ceasefire with Iran was “on life support,” leaving the Strait of Hormuz largely closed with no clear end in sight to the war.
Brent crude futures settled up USD2.92, or 2.88 percent, at USD104.21 a barrel. US West Texas Intermediate settled at USD98.07 a barrel, up USD2.65, or 2.78 percent. Brent reached a session high of USD105.99 and WTI hit a peak of USD100.37.
Last week, both benchmarks recorded 6 percent weekly losses on hopes for an imminent end to the 10-week-old conflict that would allow oil to transit through the Strait of Hormuz. But on Monday, Trump said the ceasefire with Iran was “on life support,” after dismissing Tehran’s response to a US peace proposal as “stupid.” Days after Washington floated a proposal aimed at reopening negotiations, Iran on Sunday released a response focused on ending the war on all fronts, including Lebanon, where US ally Israel is fighting Iran-backed Hezbollah.
READ MORE: Oil prices jump
Tehran also demanded compensation for war damage, emphasized its sovereignty over the strait, and called on the US to end its naval blockade, guarantee no further attacks, lift sanctions and remove a ban on Iranian oil sales. Within hours, Trump dismissed Tehran’s offer in a social media post as “totally unacceptable.” “The narrative has changed again from de-escalatory to escalatory in a matter of a few days and oil markets respond to it - although only modestly,” said Florence Schmit, an energy strategist at Rabobank.
Trump to meet with Xi this week in Beijing
Trump is scheduled to arrive in Beijing on Wednesday and is expected to discuss Iran among other topics with Chinese President Xi Jinping, according to US officials.
“I don’t think anyone is looking for the US to up the ante anytime in the balance of the week as long as this China, Trump meeting is going on,” said Bob Yawger, director of energy futures at Mizuho.
The world has lost about 1 billion barrels of oil over the past two months and energy markets will take time to stabilize even if flows resume, Saudi Aramco CEO Amin Nasser said on Sunday. Saudi Arabian crude oil exports to China are expected to fall further in June after buyers cut nominations because of costly prices linked to the US-Iran conflict and lower supplies, trade sources told Reuters.
OPEC oil output dropped further in April to the lowest in more than two decades, a Reuters survey found, as the war effectively closed the strait and forced export cuts.
Crude output by the 12-member Organization of the Petroleum Exporting Countries in April fell by 830,000 barrels per day month-on-month to 20.04 million bpd, the survey found. March’s figure was revised 700,000 bpd lower due to a change in the Saudi estimate.
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