Oil prices retreat from 5-month high after the US struck Iranian nuclear sites
Jesus Hellin/Europa Press/Getty Images
- Oil prices surged before retreating on Monday after the US struck Iran's nuclear facilities.
- Tensions rose as Iran threatened to block the Strait of Hormuz, a key oil passage.
- Goldman Sachs warned of potential oil price spikes if Iranian supply drops significantly.
Oil prices jumped to a five-month high in Asia on Monday in their first trading day after the US struck Iran's nuclear facilities on Sunday.
They gave up gains later in the trading day — a sign that investors are not yet pricing in a full-scale disruption of global oil supplies, Daniela Sabin Hathorn, senior market analyst at Capital.com, wrote in a note.
US Benchmark West Texas Intermediate rose as much as 6.2% but was 0.4% lower at $73.55 a barrel at 5 a.m. ET.
International benchmark Brent crude oil futures gained as much as 5.7% before reversing gains to trade 0.3% lower at $76.78.
US futures reversed earlier losses:
- S&P500 futures: up 0.3% at 6,033 points at 5 a.m. ET
- Dow futures: up 0.1% at 42,573.
- Nasdaq futures: up 0.3% at 21,913
Markets have been on edge about an oil supply disruption since Israel struck Iran on June 12, as Tehran had frequently threatened to blockade the Strait of Hormuz, a key oil and gas shipping passage for a third of the global seaborne oil and one-fifth of the world's liquified natural gas trade.
The Strait of Hormuz links the Persian Gulf to the Indian Ocean, with Iran to its north and the United Arab Emirates and Oman to its south. Iran is also a major oil producer.
Crude oil futures have gained about 10% since the conflict began, with a geopolitical risk premium of $12 baked into prices now, according to Goldman Sachs analysts in a Sunday note.
Goldman Sachs analysts estimated that Brent oil prices could rise to a peak of around $90 a barrel if Iranian crude supply were to drop by 1.75 million barrels a day.
"If oil flows through the Strait of Hormuz were to drop by 50% for one month and then were to remain down 10% for another 11 months, we estimate that Brent would briefly jump to a peak of around $110," they wrote.
The Goldman analysts wrote they are still assuming no significant disruptions to oil and gas supply. They flagged risks to oil and gas prices.
"While the events in the Middle East remain fluid, we think that the economic incentives, including for the US and China, to try to prevent a sustained and very large disruption of the Strait of Hormuz would be strong," they wrote.
On Sunday, the Iranian parliament voted to close the Strait of Hormuz in retaliation against the US's action, although the final decision still lies with the country's top security officials, according to Iran's state-owned Press TV.
The developments are taking place amid the summer driving season when US gas demand peaks. Should the gains in oil prices be sustained, pump prices are likely to rise in the weeks ahead.
The price of gas typically rises by 2.4 cents per gallon when crude oil prices rise by $1, according to the Energy Information Administration. This translates into a gain of over 20 cents per gallon at current levels for oil futures.