Oil swings as Trump hints at Iran war end, volatility grips markets

Crude oil was highly volatile in Asian trade on Tuesday as prices swung between negative and positive territory on reports that the US President Donald Trump was open to ending the Iran war. 

After opening in the green, oil prices had fallen 1% earlier in the session as a Wall Street Journal report indicated that Trump has informed his aides of his readiness to conclude the conflict with Iran, even without the Strait of Hormuz being reopened.

Administration officials determined that extending the military mission past the four-to-six-week deadline would be necessary to forcibly reopen the waterway, according to the report.

Volatility increases in prices

However, at the time of writing, the front-month Brent contract on the Intercontinental Exchange was largely steady at $113.13 per barrel, while the West Texas Intermediate crude was at $103.01 a barrel, almost flat from the previous change. 

The front-month May Brent contract expires on Tuesday.

The more-active June Brent contract was also flat at $107.37 a barrel. It had fallen to $104.76 a barrel earlier in the day. 

According to analysts, the price drop is merely a temporary response to the prospect of the war concluding.

A significant price shift, however, will only occur once oil flows through the Strait of Hormuz are fully restored.

“An end to the month-long war would ease global energy supply concerns and anchor inflation expectations again,” Sagar Dua, editor at FXStreet said in a report. 

However, the impact is expected to be limited for a while, as the damage to energy infrastructure across the Gulf region in the wake of military activities by all three nations, Israel, Iran, and the US, would take months to return to the restoration state, a scenario that will keep global supply limited.

The effective closure of the Strait of Hormuz by Iran has led to significant surges in oil prices.

Brent futures have seen their largest-ever monthly gain, soaring 59% in March, while WTI is up 58% this month, the biggest increase since May 2020. 

The waterway is crucial, typically transporting about one-fifth of the world's oil supply and a large volume of liquefied natural gas.

In response to the closure, Trump issued a strong warning on Monday, stating that the US would "obliterate" Iran's energy plants and oil wells if Tehran did not reopen the strait.

Escalating regional tensions and supply chain risks

Additionally, Kuwait Petroleum Corp announced on Tuesday that its fully loaded Al Salmi crude oil tanker, with a capacity of up to 2 million barrels, was reportedly hit by an Iranian attack at a Dubai port. 

The incident underscores the danger to seaborne energy supplies posed by the conflict involving Iran, the US, and Israel.

Officials also raised concerns about possible oil spills in the region.

The recent launch of ballistic missiles by the Yemen-based Houthis against Israel over the weekend, which followed US-Israeli strikes on Iranian nuclear sites, has intensified concerns regarding a wider regional conflict. 

This Iran-backed militant group is known for previously interrupting Red Sea shipping, leading to the rerouting of vessels and increasing worries about the security of energy supply chains.

The risks also intensified due to the deployment of an additional 3,500 US troops to the area, alongside renewed statements from Trump.

Specifically, Trump expressed a desire to "take the oil in Iran" and suggested the possibility of seizing Kharg Island, a key export hub.

Meanwhile, last week, Saudi crude oil exports through the Strait of Hormuz were significantly rerouted, with volumes being redirected from the Gulf to the Red Sea port of Yanbu. 

According to Kpler data, these rerouted volumes reached 4.658 million barrels per day, a substantial increase compared to the average of 770,000 bpd recorded in January and February.