Oil prices fell on Tuesday after US Defense Secretary Pete Hegseth said the ceasefire between the United States and Iran remained in place, easing fears that the region could return to full-scale war after attacks on the United Arab Emirates this week.
The price of oil fell PHOTO Shutterstock
Brent crude futures, the international benchmark, fell about 4 percent to $109.87 a barrel, while U.S. West Texas Intermediate crude lost nearly 4 percent to $102.27 a barrel, according to CNBC.
Oil prices rose more than 4% on Monday amid fears that the fragile truce between the US and Iran is about to collapse. Iran launched drones and missiles at the United Arab Emirates, while Washington announced it had sunk Iranian ships in the strategic Strait of Hormuz.
Gen. Dan Caine, the chairman of the Joint Chiefs of Staff, said Tuesday that Iran's attacks are “below the threshold of resuming major military operations at this time.” Hegseth specified that “the armistice is not over”.
“Ultimately, the president will decide whether any escalation constitutes a breach of the ceasefire”Hegseth said. “Right now, the ceasefire is holding, but we will be monitoring the situation very, very closely.”
Operation in the Strait of Hormuz
The United States launched an operation Monday to reopen the Strait of Hormuz to commercial traffic. Hegseth said two US merchant ships, along with US destroyers, had transited the strait “proving that the route is clear”.
“We know the Iranians are embarrassed by this. They said they control the strait. They don't”said the Secretary of Defense.
The Danish shipping company Maersk announced that one of its ships, under the American flag – Alliance Fairfax – crossed the Strait of Hormuz on Monday under the protection of the US military.
However, tensions remain high. In an interview with Fox News, Donald Trump warned that Iran could be “wiped off the face of the Earth” if it will target American ships protecting commercial traffic through the straits.
Iranian Foreign Minister Abbas Araghchi said in a social media post that the recent events in the Straits “makes it clear that there is no military solution to a political crisis.”
He added: “As the talks move forward with Pakistan's benevolent effort, the US should avoid being drawn into a quagmire by ill-wishers again. So should the UAE.”
OPEC member Iraq is reportedly offering significant discounts to contract buyers for crude delivered this month, according to Bloomberg, but oil tankers would have to be willing to transit the Strait of Hormuz to pick up the cargo.
“It's not just a matter of price”
Global oil reserves are not yet at critical levels, but the pace of inventory declines and uneven regional distribution are raising concerns about local shortages, Goldman Sachs said in a note on Monday.
The bank stated that easily accessible reserves of refined products are rapidly diminishing, especially in the case of petrochemical raw materials such as naphtha and LPG, but also jet fuel.
Chevron CEO Mike Wirth warned Monday that fuel shortages are becoming a more serious problem in some regions while the strait remains closed.
“I think as people understand the reality of very tight reserves, it's not just a question of price”Wirth told CNBC. “It's about: Can we get the fuel? In the coming weeks, we'll see how these effects propagate throughout the system.”
Goldman estimates that total global oil stocks, including crude and refined products stored on land and at sea, are currently equivalent to about 101 days of consumption and could fall to 98 days by the end of May.
Although the level remains above emergency thresholds, these figures mask more acute shortages in certain regions and for certain products, especially where export restrictions limit supply flows.
Analysts at the bank warn that there are higher risks of product shortages in South Africa, India, Thailand and Taiwan, based on estimates of refined product stocks and their own crude reserves.
