Oil Remains On The Boil at $106.9Amid Ship Attacks And Seizures In The Middle East

Mumbai, May 15:Oil prices continued to climb on Friday as tensions around the Strait of Hormuz escalated reinforcing fears of supply disruptions and heightening concerns over inflation and economic growth.

Brent crude futures traded at $106.9 per barrel, up 1.14% or $1.20, while U.S. West Texas Intermediate crude traded at $102.4, which is an increase of 1.21% or $1.22,with both benchmarks extending gains. Investors remained focused on reports of ship attacks and vessel seizures near the Gulf region, which have intensified worries over the safety of one of the world’s most important energy trade routes, the Strait of Hormuz.

Critical Chokepoint

Both benchmarks extended gains on Friday as tensions in the Middle East refused to simmer down. Source: Oilprice.com

The Strait of Hormuz, situated between Iran and Oman, accounts for nearly one-fifth of global oil and liquefied natural gas supplies, making any disruption in the region highly sensitive for energy markets. Although Iranian authorities said some vessel traffic had resumed through the route, traders remained cautious as shipping activity stayed well below normal levels.

Recent incidents in the region have added to those concerns. Reports of a vessel seizure near the United Arab Emirates and the sinking of an Indian livestock cargo ship off the coast of Oman did little to calm down energy markets. To be sure, even limited disruptions to shipping could tighten already fragile supply conditions.

Underlying Dynamics

Oil markets have also been supported by underlying supply-demand dynamics. U.S. crude inventories have declined sharply in recent weeks, indicating firm demand, while expectations of tighter global supplies have continued to underpin bullish sentiment across the energy complex. Market participants are increasingly pricing in the possibility that prolonged geopolitical instability could sustain higher oil prices for longer than previously expected.

The rise in crude has reignited concerns about global inflation. Higher energy prices threaten to push up transportation and manufacturing costs worldwide, potentially complicating the interest rate outlook for major economies including the United States and Europe.

Yields Rise

Financial markets have already started reacting to those risks. U.S. Treasury yields have risen sharply, while the dollar strengthened as investors moved towards safe-haven assets. Equity markets across Asia also came under pressure on Friday as traders weighed the economic impact of elevated energy costs and rising geopolitical uncertainty.

For India, the spike in crude prices poses a significant challenge. As one of the world’s largest oil importers, India remains vulnerable to sustained increases in energy costs, which could put pressure on the rupee, widen the current account deficit and stoke domestic inflation. Higher oil prices may also weigh on broader market sentiment, particularly in sectors sensitive to fuel and transportation costs.

At the same time, shares of oil marketing companies such as Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation are expected to remain in focus after the government recently raised petrol and diesel prices by Rs 3 per litre, a move aimed at cushioning the impact of soaring crude costs.

Source:

• rates from oilprice.com