Oil Prices Rise, Hormuz Remains Closed Ahead of Trump's Deadline

Oil prices climbed on Tuesday and U.S. crude was on track for its highest close since 2022 ahead of a deadline set by U.S. President Donald Trump for Iran to open the Strait of Hormuz or face attacks on power plants and other infrastructure.

Brent futures rose 63 cents, or 0.6%, to $110.40 a barrel at 10:41 a.m. EDT (1441 GMT), while U.S. West Texas Intermediate (WTI) crude rose $3.95, or 3.5%, to $116.36.

Typically WTI trades at a discount to Brent, but this has reversed in a market where barrels for earlier delivery command a higher price. The benchmark WTI contract is for May delivery while Brent is for June.

WTI was on track to close at its highest level since June 2022 for a fourth day in a row. At the end of March, when the Brent front-month was for delivery in May, it also closed at its highest since June 2022.

"What appears to be a shift in relative value is, in reality, a reflection of how aggressively the market is pricing immediacy," Saxo Bank analyst Ole Hansen said in a note.

Iran showed no sign of accepting Trump's ultimatum to open the Strait of Hormuz by the end of Tuesday. Trump said "a whole civilization will die tonight" unless Tehran reached a last-minute deal. The strait handles about 20% of global oil and liquefied natural gas flows.

Efforts to facilitate talks between the U.S. and Iran are still ongoing, two Pakistani sources with knowledge of the discussions told Reuters on Tuesday.

As the clock ticked down on Trump's deadline, strikes on Iran intensified throughout the day, hitting railway and road bridges, an airport and a petrochemical plant and knocking out power lines, according to Iranian media.

Explosions were reported on Kharg Island, home to Iran's oil export terminal, which Trump has openly mused about destroying or seizing.

Iran, meanwhile, attacked Saudi Arabia's Jubail petrochemical complex, the heart of the kingdom's downstream sector, Iran's Revolutionary Guards said, the latest evidence of Tehran's ability to strike back in response to U.S.-Israeli attacks.

FINANCIAL WINDFALL FOR SOME

Disrupted exports from Gulf oil producers have sent oil prices soaring. This has meant a financial windfall for those still able to export - Iran, Oman and Saudi Arabia - while other states have lost billions of dollars, a Reuters analysis found.

OPEC+ oil producing nations agreed on Sunday to raise their May oil output quotas by 206,000 barrels per day (bpd), though the increase will be largely notional as key members cannot boost production because of the Hormuz closure.

Crude exports from Saudi Arabia's Red Sea port of Yanbu fell by about 15% week-on-week to average nearly 3.9 million bpd in the week beginning March 30, shipping data from LSEG and Kpler showed.

Iraq could restore crude oil exports to around 3.4 million bpd within a week provided the Iran war ends and the Strait of Hormuz reopens, the head of the country’s state-run Basra Oil Company said.

SHIELDING CONSUMERS FROM SOARING ENERGY COSTS

Governments worldwide are trying to shield consumers from soaring energy costs resulting from the Iran war.

China once again limited its price hikes for gasoline and diesel to around half the typical increase under its pricing mechanism.

Japanese Finance Minister Satsuki Katayama said the government would stay in close contact with fellow Group of Seven countries, as uncertainty over the Middle East war has fuelled worries about the nation's expansionary fiscal policies.

In the U.S., major brokerages are persisting with forecasts for two interest-rate cuts by the U.S. Federal Reserve in 2026 in contrast to the central bank's latest projections, which signalled a single quarter-point reduction amid renewed inflation concerns fuelled by the conflict in the Middle East.

Central banks like the Fed use interest rates to control inflation. Lower interest rates, which reduce consumer borrowing costs, can boost economic growth and demand for oil.

In the U.S., the market waited for direction from weekly storage reports from the American Petroleum Institute trade group later on Tuesday and the U.S. Energy Information Administration on Wednesday.

Analysts projected energy firms pulled 1.6 million barrels of crude from storage during the week ended April 3. 

(Reuters)