Brent oil prices extended the previous session’s gains on Thursday morning, with the international benchmark trading around $105 per barrel. Oil rallied strongly on Wednesday, as investors showed some pessimism over a near-term diplomatic breakthrough between the US and Iran. Despite renewed talks and Tehran signalling that it remains open to diplomacy, significant differences between the two sides persist. In particular, the reopening of the Strait of Hormuz remains a major sticking point, with Iranian officials insisting that the passage will not fully reopen until their conditions are met. The stalled negotiations have revived the geopolitical risk premium that had eased earlier in the week. Meanwhile, the underlying supply picture remains mixed. Saudi Arabia has restarted its East-West pipeline, while Iraq is increasing exports, providing alternative supplies and limiting some of the upside pressure on prices. US crude inventories also unexpectedly increased by 3 million barrels last week, although stocks of gasoline and distillates declined. Against this backdrop, oil prices are likely to remain highly sensitive to developments in US-Iran negotiations. Concrete progress towards an agreement and the normalisation of traffic through the Strait of Hormuz could ease the geopolitical premium currently embedded in prices. Conversely, a complete breakdown in talks or a renewed escalation in hostilities could create scope for further gains.
Ricardo Evangelista, ActivTrades
Source: ActivTrader
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