Oil prices jump as market awaits Iran response to attacks

Oil prices surged Sunday evening to the highest levels since President Donald Trump returned to office as energy markets digested the U.S. military strike on Iran’s nuclear facilities — and the risk that Tehran may try to disrupt the flow of crude oil out of the Middle East.

U.S. crude oil futures rallied more than 6 percent to peak at $78 a barrel, more than $1 higher than the price on Jan. 20 when Trump was inaugurated. That jump is likely to filter through to gasoline prices just as drivers prepare to hit the road for the long July 4 weekend next week.

Trump had campaigned on promises to lower consumer energy prices as part of his “energy dominance” agenda, but the current average pump price of nearly $3.22 a gallon for regular gasoline is about 10 cents above the price when he was inaugurated — and likely to climb this week.

How much higher oil prices might go now depends on how Tehran responds to the attacks. Iran’s parliament’s voted to close the Strait Of Hormuz, the narrow waterway at the mouth of the Persian Gulf where a quarter of the world’s seaborne oil passes, but only an appointee of Iran’s supreme leader Ali Khamenei can make that determination. Even if that were to happen, the impact on the oil market would depend on whether Iran and its allies are satisfied harassing the oil tankers traversing Hormuz or resort to a full-scale campaign to block traffic altogether.

Reports that the White House gave Iran a head’s up on the bombings and said there wouldn’t be more to follow suggests the Trump administration is trying to avoid a full-scale war — and helping to keep oil prices in check. Energy analysts have said a disruption in the shipping traffic through the Strait of Hormuz could send oil prices above $100 a barrel.

“This choreography underscores that both sides want to calibrate this crisis, not lose control of it,” said Scott Modell, chief executive officer at energy and geopolitics analysis firm Rapidan Energy Group. “We expect Iran’s response to be stage-managed: think harassment of commercial shipping, symbolic seizures of tankers, and limited rocket fire on US military outposts — but not a full-scale campaign to choke energy flows through the Strait of Hormuz.”

Some market analysts are confident that even if the fighting does escalate, the United States, OPEC countries such as Saudi Arabia and other suppliers will have enough product to meet demand. But others are warning that a price increase may have only just begun.

“True, these oil market dynamics indicate that investors have incorporated a greater risk premium to account for the increased probability of an oil supply shock,” BCA Research analyst Roukaya Ibrahim said in a note. “Yet the more important question is whether this pricing adequately reflects the level of risk. Our sense is that crude price pressures will remain tilted to the upside over the near term.”