Oil prices rose after a three-day decline: U.S.-Iran talks take center stage
22 May 06:58
Global oil prices rose after three days of declines. The market was once again influenced by news surrounding negotiations between the U.S. and Iran, as well as the situation in the Strait of Hormuz, through which a significant portion of the world’s energy flows passes. This was reported by "Komersant Ukrainian", citing Bloomberg.
Brent crude rose above $104 per barrel, although it is still down more than 4% for the week. U.S. West Texas Intermediate traded near $98 per barrel.
Why oil prices rose again
The price increase came after a three-day decline. The main reason is uncertainty surrounding negotiations between the U.S. and Iran.
Iran stated that Washington’s latest proposal had partially narrowed the differences between the parties. This could have been a positive signal for the market. However, subsequent statements by Iranian officials have once again heightened doubts about a quick breakthrough.
Specifically, two sensitive issues are at stake:
- Tehran’s uranium stockpiles;
- the dispute over transit fees through the Strait of Hormuz.
It is precisely these issues that have dampened optimism regarding a possible resolution.
The Strait of Hormuz remains a key risk
The Strait of Hormuz is one of the most important routes for the global oil market. Large volumes of oil and petroleum products from the Persian Gulf countries pass through it.
Any uncertainty surrounding its operation immediately affects prices, as traders try to gauge when energy supplies through the strait will fully resume.
As a result, the market reacts even to contradictory political statements, and prices remain highly sensitive to news.
Oil trade volumes have declined
Since the start of the war with Iran, oil trading volumes have decreased. Market participants are in no hurry to make big bets, as the situation could change dramatically depending on new statements or decisions by the parties.
Traders are effectively in a wait-and-see mode: some market participants are afraid to buy oil at high prices if supplies through the Strait of Hormuz are quickly restored.
What analysts are saying
Rebecca Babin, senior energy trader at CIBC Private Wealth Group, noted that the constant stream of news and statements is reducing market participants’ willingness to take risks.
“The constant change in headlines is clearly reducing the willingness to take risks in both the paper and physical markets,” she said.
According to her, buyers are in no hurry to enter the market even as prices fall. They are waiting to see if energy flows through the Strait of Hormuz will resume.
At the same time, physical players continue to reduce their inventories and are reluctant to buy expensive oil shipments.
Global oil inventories are shrinking
According to estimates by Goldman Sachs Group Inc., the war and supply cuts have led to a record decline in global crude oil and petroleum product inventories.
This is putting additional pressure on the market. If supplies do not resume quickly, the shortage could worsen, and prices could remain high or rise again.
IEA ready to release additional reserves
The International Energy Agency has stated that it is ready to release additional oil reserves if necessary.
IEA Executive Director Fatih Birol said the agency had already carried out its first release of reserves in March. If the market situation worsens, further steps may be taken to stabilize supplies.
