Oil resumes climb after previous session’s respite as Iran supply fears persist

Oil prices gained on Tuesday, with losses in the previous session proving to be a brief respite amid a sustained spike sparked by the U.S.-Israel war on Iran.

Brent - the global benchmark - continued to hover above the key $100 a barrel level as the critical Strait of Hormuz remains effectively shuttered by Tehran.

Brent oil futures rose 3.2% to $103.38 a barrel by 15:14 ET (19:14 GMT), while West Texas Intermediate crude futures rose 3.1% to $95.31 a barrel. 

Strait of Hormuz remains closed

Both oil contracts slipped on Monday after reports suggesting that some vessels were able to traverse the vital waterway.

But the shipping lane has stayed largely blocked as President Donald Trump’s requests for allied help in policing the strait were mostly rebuffed. Trump on Tuesday criticized members of the North Atlantic Treaty Organization for their lack of help. Tehran has responded by threatening to strike any ship attempting to cross the Strait of Hormuz carrying goods that benefit the U.S. or its allies.

Container companies, wary of the safety of crews and struggling to find insurance for crossings, have moved to halt sailings through the strait. Major producers in the Persian Gulf, at the same time, have sought to divert oil supply shipment routes, or brought down output.

Early on Tuesday, a projectile hit a tanker anchored close to a port in the United Arab Emirates, the New York Times reported. Citing the United Kingdom Maritime Trade Operations Center, the paper said the ship, which was near the port of Fujairah at the southern end of the strait, had only minor damage.

Officials in the UAE also said that a drone had been the cause of a fire at a key oil industry hub, exacerbating fears over already constrained global supplies.

Central banks face inflation problem

The prospect of a prolonged conflict in Iran has fueled worries over an energy shock that could drive up inflationary pressures around the world, forcing some central banks to once again consider interest rate hikes. On Tuesday, the Reserve Bank of Australia hiked rates to a 10-year high, flagging "material" inflation risks from the Iran conflict.

A raft of other major central banks, including the Federal Reserve, European Central Bank, and the Bank of Japan, are also set to meet this week.

Surging oil prices and their inflationary effect have weighed on equities since the Iran war began. Oil prices have spiked by more than 40% since the start of the joint U.S.-Israeli bombardments on Iran in late February.

"Yesterday, WTI crude oil futures retested resistance in the $100-$102/bbl. range before retreating. It would be natural to see consolidation near this level, noting a minor loss of short-term upside momentum. A pause in the crude oil rally would be supportive of a brief period of stabilization for equities, noting WTI crude oil and the SPX have been negatively correlated year-to-date," Fairlead Strategies said.

Trump asks for Xi meeting delay

Elsewhere, Trump has asked that a planned meeting with Chinese counterpart Xi Jinping next month be postponed, just days after he threatened such a delay should Beijing not use its influence with Iran to help reopen a vital shipping lane.

Over the weekend, Trump called on China to send its navy to secure the Strait of Hormuz, a major waterway south of Iran through which roughly a fifth of the world’s oil supply flows.

Yet China, which buys oil from Iran, appears to have little incentive to heed Trump’s demand. Tehran has allowed Chinese tankers to traverse the strait, even as it has warned of attacks on any vessel carrying goods that may benefit the U.S. or its allies.

Meanwhile, Israel has said that Iranian security chief, Ali Larijani, is believed to have been killed in air strikes on Monday, the Wall Street Journal has reported, citing people familiar with the matter. The WSJ added that Iranian state media would publish a statement from Larijani soon.

Other media reports also said Gholamreza Soleimani, the commander of Iran’s Basij paramilitary unit, which played a role in suppressing anti-government protests earlier this year, had been killed as well. There was no confirmation yet from Iranian officials or state-backed media.