Oil market volatility picked up on April 9, following the resurgence of geopolitical events that threatened a delicate truce. Oil prices surged by almost 2%, amid worries that new missile attacks by Israel in Lebanon could threaten the truce between the US and Iran. June Brent crude futures were hovering around $97 per barrel, while WTI was trading at similar price levels.
This price move is all the more impressive considering that just the day before, oil experienced an even steeper decline of 13%, representing one of the biggest one-day drops since 2020.
Iranian authorities indicated that they would cease maritime traffic through the Strait of Hormuz, a crucial passageway for international oil exports. About 20% of the world’s oil passes through the Strait of Hormuz.
Iran’s Revolutionary Guard linked the move to alleged ceasefire violations, warning that tankers would not be allowed passage. The White House had earlier tied the continuation of the ceasefire to keeping the strait open, adding another layer of uncertainty.
For India, the stakes remain high. The country relies heavily on Middle Eastern crude, and any prolonged disruption could impact supply chains and domestic fuel prices.
Despite the volatility at the moment, analysts believe the current price level has potential for exploitation. With oil prices dropping below $100, many analysts believe it could be exploited by refineries and other trading firms.
There are observations that geopolitical premiums tend to be volatile; therefore, it would be unlikely to see any rise beyond this range unless the crisis escalates further.
Iran has suggested that vessels shipping through the Strait consider alternative routes due to safety concerns in the area. But the only problem would be the time factor involved.
The fate of oil prices will depend on two major factors: the effectiveness of the ceasefire agreement and the opening of the Strait of Hormuz.