After two dark days for crude, oil prices are rallying again on Wednesday morning after U.S. President Trump triggered a small short-covering rally by tweeting that he has ordered the U.S. Navy to "Shoot Down And Destroy" Iranian gunboats if they harass U.S. ships.
Once again, President Trump's tweet manages to lift oil prices hinting at an escalation of conflict with Iran.
Tensions in the Strait of Hormuz, the world's number one shipping lane for crude oil, continue to play a role in the markets, albeit a much smaller one.
The world hasn't forgotten about the attacks on the Abqaiq oil facilities in Saudi Arabia in September which triggered a 20 percent price jump in Brent crude, or the assassination of Iran's top General Qassem Soleimani, which put the region on the brink of war.
President Trump's tweet follows a string of incidents in the waters off the Iranian coast, starting with the harrassment of a US-flagged boxship on April 2nd by heavily armed Iranian patrol boats, followed by Iran's deployment of anti-ship missiles on Qeshm Island in that same week.
Reports of the seizure of a Hong-Kong flagged tanker on April 14th weren't confirmed by Iran, but suspicion fell almost directly on the country's paramilitary Revolutionary Guard.
It was Iran's latest move, however, that provoked Trump's ire. Last Wednesday, a group of 11 Iranian patrol boars made some "dangerous and harassing" maneuvers near U.S. warships, passing within 10 yards of a U.S. flagged vessel. After badgering the U.S. vessels for around an hour, the Iranian boats left the scene.
Iran's government did not react to the incident, but President Trump came out with a firm response on Wednesday morning, giving clear instructions to the U.S. Navy.
While President Trump's tweet may have distracted the market for a bit, markets are bracing for a very bearish EIA crude inventory report, which analysts believe could become the largest crude inventory build on record.
In a 'normal' oil market, Trump's tweet could have been a gamechanger, but in today's woefully oversupplied market, its bullish effect won't last very long.
By Tom Kool of Oilprice.com
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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations More
Comments
Iranian gun boats have been harassing US navy ships in the Strait of Hormuz waters since the US imposed sanctions on Iran. So why the threat by President Trump now? This is bound to escalate tension with Iran.
On the other hand, there is always the possibility that the Iranians may be deliberately trying to provoke the United States into military action while it is fully occupied with the devastating coronavirus outbreak.
Short of a war, it will hardly register on the oil price radar as long the outbreak is raging.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
the month of May 2020 has not yet started and the OPEC + agreement is effective until that month. Mexico's contribution is small but significant to seek a certain stability in this market.
Thank you,
Adolfo del Castillo
National Polytechnic Institute Mexico
Professor