Oil prices fall to $94 as traders weigh the risks

Crude oil prices fell below $94 per barrel on Wednesday amid heightened concerns over supply disruptions following overnight attacks between the United States and Iran, while indications suggest crude oil from the Middle East continues to reach the market. On the London market, a barrel was trading at $94.30 at midday, down 35 cents compared to the previous day's close. On the American market, a barrel dropped 57 cents to $89.65. The reference prices on both markets sharply declined from their highest levels since July 24, with the price of a barrel of oil on the London market briefly reaching $97.04 during early trading, and on the American market peaking at $92.29 per barrel. “Markets face the risk of two completely opposite outcomes,” said Ole Hansen, head of commodity strategy at Saxo Bank. “An announcement of a deal or progress could lead to a sharp drop in prices, while any escalation would further threaten the prospects for a peace agreement. As such, oil prices remain highly unstable, with the potential for changes of plus or minus five dollars depending on new developments.” The United States and Iran have resumed active hostilities after the most intense exchange of attacks in recent weeks, with Washington threatening even more devastating strikes. The Iranian Revolutionary Guard announced that U.S. attacks will further restrict traffic through the Strait of Hormuz. Iran has effectively closed this critical corridor for oil and liquefied natural gas exports from the Middle East, according to Reuters. Two oil tankers struck naval mines while attempting to pass through the Strait of Hormuz, sustaining damage that rendered them unable to sail, according to a statement released by the Iranian Revolutionary Guard and reported by state media. “Transshipment of oil from ship to ship in recent weeks has allowed continued export of part of the oil through the Strait of Hormuz, somewhat easing pressure on the oil market. However, these flows are exposed to a high risk of disruption due to military attacks,” said Hamad Hussain, senior climate and commodities economist at Capital Economics. U.S. Energy Secretary Christopher Wright stated on Tuesday that 17 million barrels of crude oil passed through the Strait of Hormuz on Tuesday, noting that this was the largest volume of crude oil passing through that maritime route since flows were reduced due to the conflict with Iran. “If the conflict escalates further and results in greater disruptions in maritime traffic in the Middle East, the price of Brent crude could rise above $100,” believes Hussain. Separate calculations by the Organization of Petroleum Exporting Countries (OPEC) show that the basket of oils from its member countries rose by $3.34 compared to the previous day, reaching $95.32 per barrel on Tuesday.