Oil Climbs but Truce Hopes Cap Gains

Oil rose after a US blockade of Iranian ports threatened to tighten global markets further, though gains were capped on signs that truce talks could still be active.

Brent was up 4.4% to settle at $99.36 and West Texas Intermediate for May gained 2.6% to settle at $99.08. While considerable questions remain around implementation and enforcement of a US naval blockade of the Strait of Hormuz, the military action will test a fragile ceasefire and could limit one of the few flows of Gulf oil that has continued through the nearly seven-week war.

Still, futures markets - more subject to volatile swings on headlines as the cost of trading oil has surged and liquidity has thinned - settled near intraday lows. The day's gains were limited by Trump's claims that Iran wants to "work a deal" after the collapse of peace negotiations over the weekend.

Tehran has not confirmed further discussions on Monday. The US blockade of Hormuz, a vital energy shipping route, prompted new threats from Iran to target vessels and ports in response, amplifying the risks for other producers.

Energy markets have been upended by the conflict, with higher prices threatening to stoke inflation while slowing economic growth. While futures closed last week at $95 a barrel, real-world oil gauges were more than $30 above that level as there's been an urgent scramble around the world for immediately available crude cargoes.

Current oil prices don't yet reflect the severity of the supply crisis, but they soon will, the head of the International Energy Agency said Monday, noting that over 80 energy facilities have been damaged during the hostilities. Recovery could take as long as two years.

"The paper market that we're seeing right now sell off a little bit is looking through the conflict to resolution and barrels being back on the market and for sale in fairly short order," said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group on Bloomberg TV. "The reality of that scenario is probably a much longer timeline, even if we get those barrels moving tomorrow."

Since the US and Israel launched the war in late February, the Trump administration has made several attempts to calm prices, including leading the largest-ever release from global emergency reserves. It had also previously lifted some sanctions on Iranian oil at sea in a bid to tame price surges. Still, oil remains near $100 a barrel on both benchmarks.

The blockade marks Trump's latest attempt to force Iran to ease its own chokehold over the strait, through which about a fifth of the world's oil and liquified natural gas transits. Since the US military's blockade began, two tankers appear to have abandoned their journey through the Strait of Hormuz since the US military's deadline to leave Iran's waters passed.

With the blockade in place, all vessels entering or leaving the closed-off area are be subject to interception, diversion and capture.

Iran's armed forces said the security of ports in the region is "either for everyone or for no one," according to the state-run IRIB News. The US blocking the strait would be "an act of piracy," it said, reiterating plans to permanently control the waterway even after the war.

If Iran did feel that its oil exports were threatened, it may push Houthi forces in Yemen to target transit through a chokepoint at Bab el-Mandeb, at the southern entrance to the Red Sea, said Mona Yacoubian, director of the Middle East Program at the Center for Strategic and International Studies. The Houthis entered the war in late March, and have the capacity to disrupt shipping in the key lane.

Oil Prices

• WTI for May delivery rose 2.6% to settle at $99.08 a barrel.
• Brent for June settlement jumped 4.4% to settle at $99.36 a barrel.