Crude oil futures traded lower on Tuesday morning after US President Donald Trump indicated his intention to end the war in West Asia and announced measures to ease supply disruptions.
At 9.06 am on Tuesday, May Brent oil futures were at $93.86, down by 5.15 per cent, and April crude oil futures on WTI (West Texas Intermediate) were at $89.80, down by 5.24 per cent. March crude oil futures were trading at ₹8261 on Multi Commodity Exchange of India (MCX) during the initial hour of trading on Tuesday against the previous close of ₹8788, down by 6 per cent, and April futures were trading at ₹8036 against the previous close of ₹8548, down by 5.99 per cent.
Prices retreat sharply
In their Commodities Feed for Tuesday, Warren Patterson, Head of Commodities Strategy of ING Group Think, and Ewa Manthey, Commodities Strategist, said ICE Brent surged as much as 28 per cent at one stage on Monday, reaching just below $120 a barrel. That came as upstream oil production in the Persian Gulf shut down with little sign of a resumption in oil flows through the Strait of Hormuz. Yet reports that Group of Seven (G-7) finance ministers were considering a significant release of oil from strategic reserves, along with Trump’s comments suggesting the war might end soon, sent prices plunging later in the session. At one point, Brent traded towards $85 a barrel.
They said that Trump’s words will only go so far. Ultimately, the market will need to see a resumption of oil flows through the Strait of Hormuz to sustain a move lower in oil prices. “Failing that, we are unlikely to have seen the highs yet,” they said.
Strategic reserves debate
Regarding a coordinated release of oil from reserves, the G-7 finance ministers did not make a decision yesterday. There are reports that the group will meet again on Tuesday and could agree on a coordinated release of 300-400 million barrels. This would be a record for coordinated releases. Back in 2022, 182 million barrels were released in a coordinated response. When combined with independent releases, this increased to 240 million barrels. The mere suggestion of this release has helped ease prices.
They said Trump also said his administration will ease oil-related sanctions on some countries until oil flows through the Strait of Hormuz return. While Trump didn’t provide details on which countries could see sanctions eased, reports indicate that his administration is considering easing oil sanctions on Russia. However, given that Russia has managed to circumvent sanctions relatively effectively in recent years, any easing will not materially increase supply, they said.
Production shut-ins widen
Mentioning that the return of oil flows through the Strait of Hormuz remains crucial, they said the longer flows remain constrained, the more upstream oil production will be shut in. This means it will take longer to ramp up output once flows resume. Since last week, there have been reports of production shut-ins from Iraq, Kuwait, the United Arab Emirates, and now even Saudi Arabia. Given the storage constraints facing Persian Gulf producers, they are trying to manage supply by lowering output from fields rather than abruptly bringing operations to a full stop, they added.
In a post on social media platform Truth Social, Trump warned Iran that if Iran does anything that stops the flow of oil within the Strait of Hormuz, they will be hit by the US ‘20 times harder than they have been hit thus far.
“Additionally, we will take out easily destroyable targets that will make it virtually impossible for Iran to ever be built back, as a Nation, again — Death, Fire, and Fury will reign upon them — But I hope, and pray, that it does not happen! This is a gift from the United States of America to China, and all of those Nations that heavily use the Hormuz Strait. Hopefully, it is a gesture that will be greatly appreciated,” he said.
Gas futures slip
March natural gas futures were trading at ₹288.20 on MCX during the initial hour of trading on Tuesday against the previous close of ₹290.40, down by 0.76 per cent.