(Bloomberg) — Oil surged, erasing nearly all of last week’s losses, after an Iranian report implied talks between Tehran and Washington to end the months-long war are unraveling.
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Brent climbed as much as 7.1% to trade above $97 a barrel, the biggest gain since late August. Iran’s semi-official Tasnim news agency reported officials were halting negotiations with the US in protest of Israel’s expanded ground attacks in Lebanon. The report dimmed hopes of an imminent resolution between the US and Iran, which had kept a lid on prices over the last few sessions.
Tasnim also said the “Axis of Resistance” — a network of Iran-backed groups in the region — is considering closing the Bab el-Mandeb Strait, which is at the southern end of the Red Sea. The waterway has been a crucial alternate path for oil to reach the global market while the Strait of Hormuz has been largely blocked.
“If the market begins to believe flows currently being rerouted through Bab el-Mandeb are at risk, there would likely be a significant repricing of supply tightness,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group.
The move is a sign of increased tension between Washington and Tehran, which have appeared until now to be trading messages over a draft agreement to extend a ceasefire and restart the flow of tankers through the Strait of Hormuz.
Overnight, President Donald Trump said “it will all work out well in the end,” despite recent strikes by both sides. But Iran said that a truce in Lebanon would be integral to any deal and accused the US of dragging out negotiations.
“The impetus for continuing negotiations seems more weighted from the Trump administration than from the Iranian side,” said Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy. “The next move may be some kind of watered down 30-day ceasefire, that will be tenuous at best.”
Crude retreated last week, reflecting gathering hopes that some form of agreement could be reached and that energy flows would resume through Hormuz. The dramatic slowdown in shipping through the vital waterway has driven up Brent futures by more than 30% since the war started at the end of February.
Elsewhere, Ukraine’s attacks on Russian oil refineries set a record in May. Moscow has banned exports of jet fuel through November to avoid shortages.
