Oil Gains as Traders Grapple With Mixed US Messages on Hormuz
TL;DR
Oil prices rose amid volatile trading as conflicting US statements on the Iran war and Strait of Hormuz shipping created market uncertainty. Traders faced whipsawing prices due to mixed messages and reduced oil flows from the region.
Key Takeaways
- •Oil prices advanced after a volatile session, with WTI rising up to 6.2% following a 12% plunge, driven by mixed US messages on the Iran conflict and Hormuz shipping.
- •Conflicting social media posts from President Trump and erroneous statements from US officials contributed to market uncertainty and extreme price swings.
- •The halt in shipping through the Strait of Hormuz, which handles 20% of global oil flows, has led major producers to cut output by up to 6.7 million barrels daily, pushing up energy prices.
- •Traders are operating in a 'fog of war' environment, reacting to real-time headlines rather than orderly market movements, with volatility expected to persist.
- •The conflict has drawn multiple countries in, raised inflation concerns, and could have catastrophic economic impacts if disruptions continue, as noted by Saudi Aramco's CEO.
Tags
Oil advanced following another volatile session as the market grappled with rapidly shifting comments from the Trump administration about the Iran war and shipping through the crucial Strait of Hormuz.
West Texas Intermediate rose as much as 6.2% to $88.59 a barrel after plunging 12% on Tuesday, with dramatic fluctuations whipsawing the market this week. Energy Secretary Chris Wright erroneously posted — and then deleted — a message that the US Navy had escorted an oil tanker through the narrow strait near Iran, only for the White House to concede no operation had occurred.
The effective halt to shipping through Hormuz, which typically handles a fifth of global oil flows, has led to major producers cutting output and driven up energy prices such as crude and natural gas. Tanker traffic has dwindled to a trickle and the market is keenly watching for a resumption of normal trade.
Volatility has soared as traders parse mixed messages on conflict
Traders also had to grapple with a flurry of conflicting social media messages from President Donald Trump about mines in the strait. The US leader is facing mounting economic and political pressure over the war, and late Monday he said the conflict would be ending soon, just not this week.
However, US officials on Tuesday signaled military operations were escalating and there was little chance of diplomatic talks, throwing cold water on Trump’s outlook for the conflict. The US president’s frenetic mine posts and Wright’s flub illustrates the scattered messaging on the war.
“It very much feels like a market trading in the fog of war, reacting in real time as events unfold, rather than one moving in an orderly fashion,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “Traders continue to get whipsawed by intense price action and extreme volatility in crude, with headlines driving sharp intraday swings.”
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The conflict in the Middle East, now into its second week, has drawn more than a dozen countries into the fray and has sparked concerns about an inflation crisis. US retail gasoline has jumped, putting additional pressure on Trump.
Saudi Arabia, Iraq, the United Arab Emirates and Kuwait have lowered their collective output by as much as 6.7 million barrels a day, or 6% of global output, according to a report from Bloomberg on Tuesday. The biggest oil refinery in UAE halted operations following a drone strike.
“There would be catastrophic consequences for the world’s oil market the longer the disruption goes on, and the more drastic the consequences for the global economy,” Saudi Aramco Chief Executive Officer Amin Nasser said on Tuesday, his first public comments since the war choked Middle East flows.
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