Oil prices climb to 3‑day high on Iran war worries

• Brent crude tops $100 a barrel
• Iran intensifies attacks on ships
• Markets unmoved by IEA pledge

Oil prices rose to a three-day high on Thursday as intensifying Iranian attacks on shipping overshadowed a multinational pledge to release crude reserves.

Iran has largely closed the Strait of Hormuz, a channel marking the entrance to the Arabian Gulf, as part of its response to US-Israeli attacks. About 20 percent of global oil and liquefied natural gas supplies are transported through the strait.

Tehran attacked five ships in the Gulf on Wednesday, including two oil tankers – up from about one strike daily previously. Its blockade of the strait has led many Middle East oil producers to reduce crude output, including Kuwait and Iraq.

Brent crude was at $97 a barrel as of 11:05 GMT on Thursday, while US West Texas Intermediate stood at $92.

The two crude benchmarks have gained 34 and 37 percent respectively since the US and Israel began strikes on Iranian civil and military infrastructure on February 28.

Earlier in the day, Brent crude had topped $100 a barrel.

The Iranian attacks on shipping have “raised concerns about a more enduring trade impasse, more lasting production shut-ins and more pronounced supply disruption”, said Norbert Rücker, head of economics at Swiss bank Julius Baer.

“Today’s oil prices seem to largely reflect the uncertainty of the situation, pricing a large risk premium that comes on top of more expensive logistics embedded in prices too.”

On Wednesday the 32 member countries of the International Energy Agency agreed to pull 400 million barrels of oil from their reserves. It is the largest drawdown in the organisation’s 52-year history. 

IEA members could feasibly release about 1.2 million barrels per day, JPMorgan analysts said this week. However, they warned this would do little to ease supply constraints.

Production cuts of crude and related products would probably rise to 12 million bpd within the next two weeks unless the strait is reopened, the analysts forecast.

“The oil market is unimpressed by the announced releases from strategic storage,” said Julius Baer’s Rücker.

He said oil markets were trading somewhere between his bank’s base and bear-case scenarios. In the former, which Rücker said was more probable, production shut-ins will peak this week before output normalises gradually towards the end of March.

The supply disruption is “unlikely [to] lead to oil shortages”, added Rücker. “That said, a pickup in attacks on ships seemingly raises the concerns about a more lasting trade impasse around Hormuz.”