Oil prices climbed over 1% on Wednesday, rebounding from two-month lows seen in the previous session. The rise followed Tehran's firm stance against exporting enriched nuclear material, coupled with ongoing threats to shipping in the Strait of Hormuz.
Brent crude futures increased by $1.69, or 1.9%, reaching $93.18 per barrel. Meanwhile, US West Texas Intermediate (WTI) crude gained $1.14, or 1.3%, to settle at $87.18 per barrel. This uptick came after a sharp drop of more than $3 per barrel on Tuesday, when US officials suggested a reduced likelihood of further military strikes against Iran.
Iran's security chief's declaration that no enriched nuclear material would leave the country has added complexity to potential negotiations aimed at resolving tensions with Iran. Washington has emphasized the importance of including nuclear issues in any initial discussions.
UBS analyst Giovanni Staunovo noted that the current oil price support stems from diminishing hopes for a swift de-escalation of tensions. The situation in the Strait of Hormuz remains volatile, with 37 ships attacked in October alone, marking the highest monthly total since the conflict began, according to the Washington Institute for Near East Policy.
June Goh, a senior analyst at Sparta Commodities, highlighted the ongoing uncertainty surrounding diplomatic talks as a significant market driver. She pointed out that the increase in vessel attacks in the Gulf shipping lanes further complicates the situation.
Despite recent gains, Brent and WTI prices have fallen approximately 21% and 17%, respectively, since the beginning of the month, driven by earlier hopes for a resolution to the conflict.
Shipping Risks and Supply Concerns
In addition to geopolitical tensions, shipping risks continue to loom large. On Tuesday, a tanker was reportedly struck northeast of Lima in Oman, according to the United Kingdom Maritime Trade Operations agency. Iran's Revolutionary Guards Navy reported that two tankers caught fire after encountering naval mines on an unauthorized route in the strait.
LSEG Oil Research noted that even if a diplomatic deal is reached, increased oil flows through the Strait of Hormuz would still face hurdles such as mine clearance, insurance costs, and shipowners' willingness to take risks.
On the supply front, US crude stocks rose by 9 million barrels last week, as tute. Official figures are expected later on Wednesday.
Separately, a drone attack caused a fire at the port area of Ust-Luga on Russia's Baltic coast, injuring three workers, according to a regional governor. This incident highlights the broader regional instability affecting oil markets.
Russian oil refining capacity has been reduced by about 30% since late October due to renewed Ukrainian drone attacks, industry sources revealed. Meanwhile, Russian and Ukrainian officials met in Abu Dhabi on Tuesday for their first peace talks since February, as US President Joe Biden's envoys initiated a new effort to end the war.
