Oil prices soared Thursday as escalating tensions between the US and Iran in the crude-rich Gulf lent support to markets battered by a coronavirus-triggered demand shock and concerns about storage.
Brent crude, the international benchmark, rose 11.8 per cent to $22.79 a barrel in Asian afternoon trade.
US benchmark West Texas Intermediate jumped 14.37 per cent to $15.76 a barrel, extending big gains from a day earlier.
Still, prices remain at multi-year lows as lockdowns and travel restrictions to fight the virus batter demand and storage facilities are overwhelmed by excess supply.
Markets have had a rollercoaster ride this week, with US crude falling into negative territory for the first time as traders sought to offload oil but could not find buyers as storage facilities are reaching capacity.
Phillip Futures cited ‘heightened risk in the Middle East’ for the current rally, which began in the New York session Wednesday after the US issued new threats amid rising naval tensions in the Gulf.
US president Donald Trump took to Twitter to say he had ‘instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea’.
Iran meanwhile said it put its first military satellite into orbit, making it an emerging ‘world power’. Washington alleges that the space programme is a cover to develop ballistic missiles.
The Gulf is a major gateway for oil to reach international markets, and previous spikes in tensions between US and Iranian vessels have seen crude prices similarly surge higher.
The rising tensions overshadowed a weekly US inventory report that showed another big jump in crude stockpiles, including at the Cushing, Oklahoma hub where analysts say there is little remaining space as the virus saps demand.
Phillip Futures however said that oil market watchers were divided as to the ‘motive of the president’s statement as it is released at a time of the historic crash in West Texas Intermediate and Brent crude.
‘The tweet is highly likely to be part of his administration’s strategy to impact the oil price,’ they said in a note, adding that US shale had been badly hit by the oil price collapse.
Analysts however say that geopolitical tensions won’t have a lasting impact if crude storage facilities are full.
Even a deal by top global producers to reduce output by almost 10 million barrels a day has had little impact, with prices continuing to plummet.
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