Futures closed 1.1% higher in New York on Monday after easing some gains during the session. While the UK demanded the immediate release of the Stena Impero, taken by Iran’s Revolutionary Guard Corps in the Strait of Hormuz on Friday, British Defense Minister Tobias Ellwood said he wanted to de-escalate the situation.
“It seems to be a situation where neither side is trying to force a military solution to these tensions,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “So in situations like this, news of the conflict leads the market to rally strongly and then pull back.”
The US benchmark crude rose Friday after the tanker seizure highlighted the risk of flows through the world’s most critical crude choke-point. Nonetheless, prices fell 7.6% last week, the sharpest pullback since May, amid concerns that a slowing global economy will weigh on oil demand.
West Texas Intermediate for August delivery, which expires Monday, added 59 cents to settle at US$56.22 a barrel on the New York Mercantile Exchange, the largest gain since July 10. The more-active September WTI contract rose 46 cents to end the session at US$56.22 a barrel.
Brent for September settlement advanced 79 cents to settle at US$63.26 a barrel on the ICE Futures Europe Exchange. The global benchmark crude traded at a premium of US$7.04 for the same month, the widest since late June.
On Monday, Prime Minister Theresa May led a meeting of the UK’s emergency committee to discuss the security of shipping in the Persian Gulf. While the UK government previously threatened Iran with “serious consequences” over the tanker seizure and advised British ships to avoid the area, ministers on Sunday sought to dial down the rhetoric.
Tensions have flared in the Strait of Hormuz in recent weeks as Iran lashes out against US sanctions that are crippling its oil exports and after the seizure of one of its tankers near Gibraltar. The Strait accounts for about a third of the world’s seaborne oil flows.
Meanwhile, in response to the ongoing conflict, the International Energy Agency said it is closely monitoring developments in the Strait of Hormuz and its members’ emergency oil stocks are large enough to cover any supply disruptions for an extended period.