Oil prices surged in volatile trading as US President Donald Trump warned of the possibility of further military aggression against Iran in the next two to three weeks.
The statement weakened market expectations of a near-term de-escalation of the conflict and pushed risk sentiment back up.
US West Texas Intermediate (WTI) crude oil futures for the May contract rose 4.1% to $104.21 a barrel, while Brent crude for the June contract rose 5% to $106.42 a barrel. The rise was driven by concerns of a growing global energy supply disruption.
Trump also linked the surge in oil prices to Iran's alleged targeting of commercial oil tankers and neighboring countries, thus increasing tensions in the region. At the same time, he signaled that the conflict may end in the short term, but negotiations with Tehran are still ongoing, creating uncertainty about the geopolitical direction.
The market is now seen moving in a binary outcome, with investors assessing whether the conflict will subside or continue to escalate. So far, sentiment has been more towards increased risk, with investors taking a cautious approach while waiting for further developments.
The situation has become more critical as the Strait of Hormuz, a key route that handles about a fifth of the world's oil and gas flows, has remained disrupted since the conflict began on February 28. The disruption has triggered one of the most serious global energy crises in decades.
Oil tanker traffic through the route is not expected to recover anytime soon, thus maintaining pressure on energy prices. Uncertainty about the access and security of the route has also increased concerns among global energy operators and consumers.
Oil prices had previously fallen when Trump hinted that US military operations might be halted within two to three weeks, thus raising hopes for a resolution to the conflict. However, conflicting statements between the possibility of peace talks and the threat of continued military action continue to cloud the direction of the market.
Iran, on the other hand, denied the allegations regarding the ceasefire request and insisted that the passage through the Strait of Hormuz remains under their full control.
The contradictory statements between the two sides have further increased geopolitical uncertainty, thus making the oil market remain sensitive to any new developments.
Overall, the current movement in oil prices is driven by high geopolitical risks, supply disruptions on strategic routes, and military and diplomatic policy uncertainties.
In the short term, the market is expected to remain volatile with an upward trend as long as the issues in the Middle East have not shown clear signs of resolution.
