US-Iran deadlock pushes Brent crude past $100; more upside seen

The crude oil market has been increasingly sensitive to market headlines over the last month. 

Experts said if no progress is made in the peace talks between the US and Iran, fears about supply disruptions will rise, thereby leaving more upside for oil prices.

Oil prices rose further on Thursday due to the deadlock in peace negotiations between Iran and the United States, along with both countries continuing trade restrictions in the Strait of Hormuz. 

Brent moved past $100 per barrel in the previous session and extended its gains on Thursday. 

“The market is having to reprice expectations,” Warren Patterson, head of commodities strategy at ING Economics, said in a note. 

At the time of writing, the Brent crude oil contract was at $103.25 per barrel, up 1.3%, while the West Texas Intermediate crude was at $94.25 a barrel, up 1.4%.

More upside possible

“As hopes fade, the reality of the supply disruption will set in, leaving further upside for prices,” Patterson added. 

The market will increasingly disregard the recent noise and headlines driving price action unless meaningful progress is achieved in peace negotiations, according to Patterson.

Despite US President Donald Trump extending a ceasefire—following a request from Pakistani mediators—Iran and the US are still limiting ship transit through the Strait of Hormuz. 

This route, a crucial passage, previously handled roughly 20% of the world's daily oil supply before the war began on February 28.

Iran intensified its control over the critical chokepoint by seizing two ships in the waterway on Wednesday.

Meanwhile, the US Navy's blockade of Iran's maritime trade, maintained by Trump, remains in effect. 

A full ceasefire, according to Iranian parliament speaker and chief negotiator Mohammad Baqer Qalibaf, would only be justifiable if this blockade were simultaneously lifted.

The US military has intercepted at least three Iranian-flagged tankers in Asian waters, diverting them from routes near India, Malaysia, and Sri Lanka, according to shipping and security sources on Wednesday.

Demand destruction

“Meanwhile, we continue to see growing demand destruction in the oil market, a trend that will intensify as Persian Gulf supply disruptions persist,” Patterson said. 

Amid significant price increases and a tightening in jet fuel supply, airlines are continuing to announce flight cancellations. 

The jet fuel market in Europe is particularly vulnerable to changes and developments in the Middle East.

The region's jet fuel supply is primarily sourced from the Persian Gulf.

However, there is a current emphasis on Europe seeking alternative sources, in addition to heavily utilising existing inventory.

In recent weeks, jet fuel inventory in the ARA region has seen a rapid decline, now sitting at its lowest point since the COVID-19 pandemic.

The record high price of jet fuel—nearly $1,800 per ton in early April—reflects this trend, with prices having more than doubled at their peak since the start of the Iran war.

US exports rise

As global buyers look for different sources, the US is exporting historically high volumes of oil and refined products, according to continuous data from the Energy Information Administration.

Exports of total oil and refined products saw an increase of 137,000 barrels per day in the most recent reporting week, reaching a total of 12.88 million bpd.

Refined product flows were the primary driver behind the recent surge in exports, increasing by 564,000 bpd week-on-week.

This increase pushed total exports past the 8 million bpd mark for the first time.

“Although the US market has been relatively shielded from Middle East supply disruptions, prolonged instability tightens conditions as global buyers increasingly turn to US supplies,” ING’s Patterson said. 

Despite a 1.93 million barrel increase in US commercial crude oil inventories last week, total crude oil inventories decreased by 2.21 million barrels once Strategic Petroleum Reserve (SPR) releases were factored in. 

Furthermore, stronger exports of refined products led to a decline in stocks, with gasoline and distillate fuel oil inventories dropping by 4.57 million barrels and 3.43 million barrels.