Oil Advances on Iran Tension
(Bloomberg) -- Oil rallied for a third day as heightened tensions in the Persian Gulf threatened to disrupt energy flows from the crude-rich region, while a tepid demand outlook kept a lid on gains.
Futures in New York rose as much as 0.5% after climbing 1.7% over the past two sessions. Secretary of State Michael Pompeo said Monday that the U.S. had sanctioned a Chinese state-run oil trader for violating White House-imposed restrictions on Iranian crude. Meanwhile, U.K. Foreign Secretary Jeremy Hunt announced that European governments will assemble a naval mission to provide safe passage for ships through the gulf after Iran seized a British tanker.
The renewed tension around the Strait of Hormuz, through which around a third of the world’s seaborne oil flows, comes after five straight weeks of declines in American crude inventories have led to a tighter supply picture. Only a weak global demand outlook with few signs the U.S.-China trade war will be resolved soon are keeping oil prices from rising further.
“The market is going to be on the edge watching headlines as things progress,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney. The risk of supply disruptions is rising, but “demand issues are keeping a lid on things at the moment,” he said.
West Texas Intermediate for September delivery climbed 24 cents, or 0.4%, to $56.46 a barrel on the New York Mercantile Exchange as of 7:26 a.m. in London. The August contract climbed 1.1% on Monday as it expired.
Brent for September settlement added 32 cents to $63.58 a barrel on the ICE Futures Europe Exchange after settling 1.3% higher on Monday. The global benchmark was trading at a $7.14 premium to WTI.
The U.S. penalized Zhuhai Zhenrong Co., a company with links to the Chinese military, for accepting oil from Iran. “We’ve said all along that any sanction will indeed be enforced,” Pompeo said in a speech Monday. The move is likely to raise Beijing’s hackles as the two countries restart trade negotiations
Britain doesn’t want to escalate tensions with Iran and won’t be taking part in the White House’s “maximum pressure” policy, the U.K.’s Hunt said as he announced the European naval mission. Iran’s Deputy Foreign Minister Abbas Araghchi is traveling to France to meet French President Emmanuel Macron as the crisis complicates Europe’s efforts to save the 2015 nuclear accord.
--With assistance from James Thornhill.
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