A pump jack in Midland, Texas, U.S. (Photo: Brandon Bell)
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Oil prices moved sideways on Monday after U.S. president Donald Trump said the country’s navy would attempt to ease the disruption caused by Iranian threats to the Strait of Hormuz.
At 9:05am EDT on Monday, the Brent front-month futures contract was up 1.89% or $1.97 to $110.09, while U.S. West Texas Intermediate contract was trading at $102.28, up 0.34% or $0.33.
Trump said the operation named “Project Freedom” was a “humanitarian gesture” by the U.S. and that any interference by Iran would “be dealt with forcefully.”
The aim is to free global merchant ships, especially oil tankers, held up in the key maritime artery following threats by Iran, and a subsequent blockade of Iranian ports and cargoes by the U.S. navy.
Giving details, U.S. Central Command ("Centcom") said the operation would involve 15,000 service personnel, over 100 aircraft and guided missile destroyers. In response, Iran threatened action against any U.S. ship entering the Strait of Hormuz and claimed it had already attacked one vessel.
The claim was swiftly denied by the Centcom. It added the Project Freedom was proceeding at pace and that two U.S.-flagged merchant vessels had successfully transited the Strait on Monday. Since the conflict began on February 28, nearly 2,000 ships have been trapped in the region, according to the International Maritime Organization.
On April 8, U.S. and Iran agreed to a ceasefire to hold talks that have failed to yield a shift in either party’s position so far. But the ceasefire has since held. Both sides have issued fresh proposals for ending the stalemate via Pakistan which is acting as an intermediary.
However, Trump has refused to rule out further U.S. action against Iran. Speaking to the BBC, the president said military strikes against targets inside Iran could be renewed "if they misbehave or if they do something bad."
“But right now we’ll see,” adding that "we’re not leaving. We’re going to do it (remove the Iranian threat), so nobody has to go back in two years or five years".
ForbesWhy United Arab Emirates Has Unshackled Its Oil Production From OPEC
Meanwhile, the Organization of Petroleum Exporting Countries - which saw the United Arab Emirates’ exit from its ranks on last week - said on Sunday that its 188,000 barrels per day output hike would continue and be implemented for another month in June.
The hike was its third since the U.S.-Iran war broke out. However, exports from many of its members remain severely curtailed by the disruption in the Strait of Hormuz.
OPEC’s announcement also made no mention of the UAE’s decision to leave the organization. For its part, the UAE has since also quit the Organization of Arab Petroleum Exporting Countries or “OAPEC” which does not set production policies for its members unlike OPEC, but is more of a forum for technical exchanges between its members.
The UAE also condemned a drone attack on Monday on one of its oil tankers by Iran which wasn’t carrying cargo at the time. There was no substantial damage or injuries to the crew, according to a statement, as oil prices remained elevated but range-bound above $100 at the start of the trading week.
Disclaimer: The above commentary is meant to stimulate discussion based on the author’s opinion and analysis offered in a personal capacity. It is not solicitation, recommendation or investment advice to trade oil stocks, futures, options or products. Oil markets can be highly volatile and opinions in the sector may change instantaneously and without notice.
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