Crude oil prices climbed about 3 per cent on Monday as worries over supply disruption from the Iran war offset a report that the US had agreed to waive sanctions on Iranian crude during talks.
Brent futures rose $2.84 or 2.6 per cent to $112.10 a barrel, while the US West Texas Intermediate (WTI) crude for June delivery jumped $3.24 or 3.1 per cent to $108.66 per barrel.
Drone attacks on both the United Arab Emirates (UAE) and Saudi Arabia further dimmed hopes of any de-escalation in the region.
The drone strikes included an attack that led to a fire near the Barakah nuclear power plant in the UAE, with the country’s defence ministry saying two other drones had been successfully dealt with. Meanwhile, Saudi Arabia said it had intercepted three drones that entered its airspace from Iraq.
These attacks are just the latest in a string of attacks on US allies in the region after President Donald Trump launched Project Freedom, his latest attempt to reopen the Strait of Hormuz for trade.
The lack of a breakthrough on an Iran agreement during President Trump’s visit to China also added to upward pressure for oil prices, with fears of major global shortages now rising rapidly.
Also, the International Energy Agency (IEA) said commercial oil inventories were depleting rapidly, with only a few weeks’ worth left due to the conflict and the closure of the strait to shipping.
The head of the Paris-based agency, Mr Fatih Birol, said the release of strategic reserves had added 2.5 million barrels of oil per day to the market, but they were “not endless”.
Reuters cited an Iranian media report that the US had accepted in the new text to waive Iran’s oil sanctions during the period of talks, also reporting that Pakistan has shared with the US a revised proposal from Iran to end the war in the Middle East.
According to the Financial Times, Scotland-based economists are now examining a scenario where Brent crude surges to $180 per barrel if traffic through the Strait of Hormuz remains constrained for an extended period.
In China, growth lost momentum in April, with industrial output cooling and retail sales sinking to more than three-year lows as the world’s second-biggest economy faced higher energy costs from the Iran war and persistently weak domestic demand.