Brent holds firm after initial US air strike spike

The front-month ICE Brent contract has lost $0.02/bbl on the day from Friday, to trade at $77.06/bbl at 09.00 GMT.

IMAGE: Getty Images

Upward pressure:

Brent futures initially shot up early this morning, after the US military struck key Iranian nuclear facilities with bombs over the weekend.

Oil prices responded swiftly to the development, but the reaction was short-lived, as the move had been widely expected, according to oil market analysts.

“Crude opened the week on a tear, with Brent spiking nearly 6% to $79 before fading to +3% as the dust settled on U.S. airstrikes targeting Iran’s nuclear infrastructure.,” SPI Asset Management managing partner Stephen Innes noted.

Tehran’s government has promised retaliation, with the country’s parliament calling for a closure of the Strait of Hormuz, according to media reports.

“Clearly, a major risk for the oil market is Iran now attempting to disrupt shipping flows through the Strait of Hormuz,” ING Bank’s head of commodities strategy Warren Patterson remarked. “This is a crucial choke point for global oil and LNG flows, with a quarter of seaborne oil trade moving through the strait,” he added.

Downward pressure:

Brent has moved slightly lower from Friday’s settlement as the market continues to monitor Middle Eastern developments, particularly how Tehran will retaliate following Saturday’s US air strikes.

“The [oil] market sits like a coiled spring, waiting for Tehran’s next move. Everything hinges on Iran’s response,” Innes said.

Moreover, the global oil market has already priced in OPEC+’s spare production capacity as a buffer against any significant supply disruption from Iran.

“Inventories and OPEC+ spare capacity are safety nets in theory, but only if the shipping lanes remain intact,” Innes added.

By Aparupa Mazumder

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