Oil rebounds above $100 as war risk premium returns to markets

Vijay Valecha, March 24, Khaleej Times

Global oil prices rebounded above the psychologically important $100-a-barrel level after sharp swings earlier this week, as conflicting signals on possible US-Iran talks revived supply concerns and restored a significant geopolitical risk premium to energy markets already strained by disruptions around the Strait of Hormuz.

Benchmark Brent crude climbed nearly 4 per cent to about $104 a barrel on Tuesday before easing slightly to around $102, recovering part of the more than 10 per cent plunge recorded a day earlier when markets briefly priced in prospects of de-escalation between Washington and Tehran.

The rebound underscores how sensitive crude markets remain to developments in the Gulf, where roughly 20 per cent of global oil and liquefied natural gas shipments normally pass through the Strait of Hormuz, the world’s most critical energy corridor.

Prices had earlier surged as high as $113 a barrel after warnings from US President Donald Trump that Iranian infrastructure could be targeted if shipping routes were not reopened. Markets then reversed sharply after he signalled a temporary pause in military escalation and referred to “productive” contacts with Tehran — claims later rejected by Iranian officials.

Analysts say the latest rebound reflects the return of a structural “war premium” as traders reassess the durability of any diplomatic breakthrough.

Energy flows through the Gulf remain fragile more than three weeks after the conflict began on February 28, with tanker movements disrupted and shipping insurers raising premiums across the region. Even limited transit activity through Hormuz has done little to calm markets, as traders continue to price in the risk of further escalation involving regional producers.

According to Vijay Valecha of Century Financial, the sharp fall earlier this week demonstrated how quickly crude can react to diplomatic headlines — but the broader supply picture remains uncertain.

“Even if the fighting stops, the damage to infrastructure, shipping flows and inventories will take much longer to unwind,” Valecha said, adding that the possibility of additional regional actors entering the conflict could keep prices elevated in the near term.

Markets are also adjusting to the reality that disruptions in the Strait of Hormuz could persist beyond the immediate crisis phase. Iranian officials have indicated the waterway may not quickly return to normal operations, reinforcing expectations of tighter supply conditions in global energy markets.

The impact is already being felt worldwide. Several Asian economies dependent on Gulf crude have begun reviewing fuel supply chains, while countries including Thailand and Chile have raised domestic fuel prices. China has moved to moderate planned retail fuel increases to cushion consumers, and refiners across Asia are prioritising local supply security as shipping risks intensify.

Despite the volatility, analysts say oil’s ability to recover quickly above $100 reflects strong underlying market fundamentals. Global spare production capacity remains concentrated largely in the Gulf, leaving traders highly responsive to any threat affecting the region’s export infrastructure.

Recent data from S&P Global also show input costs for businesses rising at the fastest pace in decades in some economies, highlighting how energy-market disruptions are feeding into broader inflationary pressures.

Technical indicators suggest prices may remain supported in the near term. Brent crude continues to hold above key support near $100 a barrel, with resistance levels around $107 and $114 likely to be tested if geopolitical risks intensify further.

For energy exporters in the Gulf, including the UAE, sustained prices above $100 strengthen fiscal balances and support investment spending across infrastructure and diversification projects. Economists say this provides an additional buffer for regional economies even as global markets adjust to heightened uncertainty.

Analysts say the trajectory of oil prices will depend largely on developments around Hormuz and the duration of the conflict.

Source

Khaleej Times