Brent rises after Vance warns Israel against breaking ceasefire

HOUSTO — Brent crude oil prices rose on Thursday (June 17) after US Vice President JD Vance warned Israel against further attacks on Iran-backed Hezbollah in Lebanon, raising doubts about the durability of the US-Iran ceasefire agreement.

"The vice president's statements about Israel may have put things back on edge," said John Kilduff, partner with Again Capital. "I think the slightest sort of disturbance is going to register in the market."

Brent crude futures settled at US$79.85 (S$103) a barrel, up 30 cents, or 0.38 per cent. US West Texas Intermediate fell 19 cents or 0.25 per cent to finish at US$76.60 a barrel.

Before Vance's comments, Brent touched its lowest level since March 2, which was the first day of trading after the initial US-Israeli strikes on Iran. WTI was at its lowest since March 4.

Ultimately, oil markets will be focused on what happens in the Strait of Hormuz, through which 20 per cent of the world's oil flowed before the start of the war.

"Full resumption of oil flows through the strait has been priced back in," Kilduff said. "Anything short of that will be a problem."

The 14-point memorandum of understanding between the US and Iran establishes a 60-day negotiation period during which Iran will allow toll-free passage through the Strait of Hormuz. 

The deal calls for traffic through the strait to be restored to its full capacity within 30 days.

The agreement is also binding on the two countries' allies in the Middle East and applies specifically to Lebanon, where Israel has been waging an air and ground campaign against Hezbollah.

The preliminary accord defers many of the more difficult issues, such as Iran's nuclear programme, and also requires the US and its partners to come up with a US$300-billion plan to finance Iran's recovery.

Analysts expect a gradual recovery in flows through the Strait of Hormuz, while industry experts have cautioned that prices may not plummet as demand recovers and inventories are refilled.

Investment bank Goldman Sachs expects Gulf exports to normalise to pre-war levels by end-July, with crude production recovering by October.

The bank estimates that a normalisation in exports to pre-war levels might be achieved with a 13 million barrel-per-day increase in Hormuz flows from current levels to around 70 per cent of pre-war levels.

BNP Paribas does not currently anticipate a return to pre-war prices and views US$75 per barrel as a "durable floor for the foreseeable future," it said in a note, given ongoing supply losses and higher demand. 

Brent traded around US$60 to US$70 per barrel in the first two months of the year before the war.

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