Crude markets volatile as Israel-Iran conflict escalates

Buying was driven by the ongoing Israel-Iran conflict, with no resolution in sight,” said Toshitaka Tazawa, an analyst at Fujitomi Securities.

“But as seen last Friday, some selling emerged on concerns of overreaction,” he said.

STRAIT OF HORMUZ IN FOCUS

While markets are watching for potential disruptions to Iranian oil production due to Israel’s strikes on energy facilities, heightened fears over a Strait of Hormuz blockade could sharply lift prices, Tazawa added.

Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), currently produces around 3.3 million bpd and exports more than 2 million bpd of oil and fuel.

The spare capacity of OPEC and its allies, including Russia, to pump more oil to offset any disruption is roughly equivalent to Iran’s output, according to analysts and OPEC watchers.

“If Iranian crude exports are disrupted, Chinese refiners, the sole buyers of Iranian barrels, would need to seek alternative grades from other Middle Eastern countries and Russian crudes,” said Richard Joswick, head of near-term oil analysis at S&P Global Commodity Insights, in a note.

“This could also boost freight rates and tanker insurance premiums, narrow the Brent-Dubai spread, and hurt refinery margins, particularly in Asia,” Joswick added.

China’s crude oil throughput declined by 1.8 per cent in May from a year earlier to the lowest level since August, official data showed on Monday, as maintenance at both state-owned and independent refineries curbed operations.

US President Donald Trump said on Sunday he hopes Israel and Iran can broker a ceasefire, but added that sometimes countries have to fight it out first. Trump said the US would continue to support Israel but declined to say if he asked the US ally to pause its strikes on Iran.

German Chancellor Friedrich Merz said he hoped a meeting of the Group of Seven leaders convening in Canada on Sunday would reach an agreement to help resolve the conflict and keep it from escalating.

Meanwhile, Iran has told mediators Qatar and Oman that it is not open to negotiating a ceasefire while under Israeli attack, an official briefed on the communications told Reuters on Sunday.