Oil prices climbed in early Asian trade on Monday as drone attacks on both the UAE and Saudi Arabia further dimmed hopes of any de-escalation in the region. The lack of a breakthrough on an Iran agreement during Trump’s visit to China also added to upward pressure for oil prices, with fears of major global shortages now rising rapidly.
At the time of writing, WTI front-month futures were trading at $108.20 per barrel, up 2.59% on the session, while Brent had climbed to $111.50 per barrel, up 2.03%.
The latest drone strikes included an attack that led to a fire near the Barakah nuclear power plant in the UAE, with the country’s defense ministry saying two other drones had been successfully dealt with. Meanwhile, Saudi Arabia said it had intercepted three drones that entered its airspace from Iraq.
UAE officials reported that the Barakah strike hit an electrical generator outside the inner perimeter of the nuclear facility, with no radiation leak or injuries.
These attacks are just the latest in a string of attacks on U.S. allies in the region after President Trump launched Project Freedom, his latest attempt to reopen the Strait of Hormuz for trade.
While there had been some optimism that Trump’s visit to China last week might result in President Xi using his influence with Iran to reopen the Strait, the lack of a breakthrough has reignited concerns of major shortages. Over the weekend, Trump was once again threatening Iran to negotiate or face the consequences.
As physical oil markets continue to tighten, nearly 80 countries have now introduced emergency measures to protect their economies from the looming energy crisis. According to the Financial Times, economists at Aberdeen are now examining a scenario where Brent crude surges to $180 per barrel if traffic through the Strait of Hormuz remains constrained for an extended period.
The International Energy Agency, in its latest Oil Market Report, estimated that there will be “a 6 mb/d gap from March to June” between supply and demand.
The size of that deficit has already forced governments and traders to drain stockpiles at an unprecedented pace, with both global inventories dropping and floating storage being used up.
JPMorgan estimates that OECD inventories could approach “operational stress levels” by early June, raising the risk of more extreme price spikes and potential physical shortages.
For both the oil markets and the Iran ceasefire, it seems that time is running out. Trump is set to hold a meeting with his top national security advisors in the Situation Room on Tuesday, with any escalation in the conflict set to send prices surging higher still.
BOilprice.com
