Oil prices climbed to three-week highs on Thursday on concerns that the impasse in the Iran war will keep disrupting supply from the Middle East.
Brent crude futures for October delivery rose $2.44, or 2.7%, to $94.06 a barrel by 0958 GMT. US West Texas Intermediate crude for September added $1.84 to $87.67, while the more actively traded October WTI contract was up $2.41, or 2.9%, at $86.80. The September WTI contract was due to expire later on Thursday.
Both benchmarks reached their highest levels since July 24 and gained for a fifth consecutive session.
What is driving the move
“Tensions in the Middle East remain high, leaving room for further supply disruptions,” UBS analyst Giovanni Staunovo said. “Lower oil exports from the Middle East are once again tightening the oil market.”
The United Arab Emirates’ decision to suspend all financial and economic transactions with Iran until further notice has drawn fresh attention to relations between the major Gulf Arab producer and Tehran.
Hiroyuki Kikukawa, chief strategist at Nissan Securities Investment, said prices “remained elevated as the market is supported by sporadic attacks in the Middle East but lacks fresh momentum without a major escalation.” He expected a gradual upward trend to continue given uncertainty over peace talks and tensions involving the UAE, Oman and Iran.
The waterway dispute
US President Donald Trump said on Tuesday that no talks were taking place with Iran and that the Strait of Hormuz was open. Iran maintains the waterway remains shut. Shipping traffic through the strait on Wednesday was unchanged from the previous day, according to shipping data, with talks to end the conflict deadlocked.
Trump warned on Wednesday of economic consequences for any country providing “any type of lifeline” to Iran.
Before the war began with US and Israeli strikes on Iran on February 28, shipments equal to about a fifth of global consumption moved through the strait. Flows are now far below pre-war levels.
The conflict has also hit refined fuel supply and drawn down inventories, with less crude available to refiners. US stockpiles of distillate fuels, including diesel and heating oil, fell for a third straight week, the Energy Information Administration said on Wednesday, although crude inventories unexpectedly rose by 4.4 million barrels.
Why it matters for Sri Lanka
Sri Lanka imports effectively all of its crude and refined fuel, so sustained increases in global benchmarks feed through to import costs and, in time, to domestic pump prices. The Ceylon Petroleum Corporation has already flagged concern over global diesel prices, and the closure of the strait has begun reshaping trade routes through the island, with a shipment of luxury cars rerouted via Colombo this week.
