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(Bloomberg) — Oil gained after President Donald Trump threatened strikes on Iran if Hezbollah keeps attacking Israel, raising concerns about progress for peace talks between Washington and Tehran.
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Brent crude climbed as much as 2.2% at the open to $82.30 a barrel, while West Texas Intermediate advanced above $78. Negotiations got off to a rocky start on Sunday after Iranian media reported the Islamic Republic halted talks in Switzerland after Trump’s threat, but people familiar with the matter said they continued. Tehran accused Israel of violating a truce in Lebanon.
The high-level meeting in the Swiss resort of Bürgenstock is happening at the start of a 60-day window for negotiations, after Trump signed a memorandum of understanding last week which began the process of deescalation. Despite Iran claiming to have closed the Strait of Hormuz again, millions of barrels of oil continued to flow through the waterway over the weekend.
Other energy commodities also gained on Monday, with benchmark European natural gas prices advancing as much 3.9%. A fifth of global liquefied natural gas was exported through Hormuz prior to the start of the war in late February. US gasoline futures climbed along with diesel.
Talks in Switzerland progressed into the early hours of Monday, covering topics including mechanisms to ensure the strait remains open and how to enforce the ceasefire between Israel and Hezbollah in southern Lebanon, according to a senior US diplomat engaged in the discussions. Speaking Sunday to Fox News, Trump said he told Iranian leaders directly that if they close Hormuz, “You won’t even make it back” to Iran, using an expletive.
The war in the Middle East has choked off supply in a region responsible for a third of the world’s oil production. Crude futures have come off in recent weeks — although prices remain higher than pre-war levels — after global refiners found temporary workarounds, and as the prospect of an end to the conflict fueled optimism over a rapid return to normality.
A peace deal would in theory unleash a gush of supply where there’s less demand for now, especially given a slump in purchases by top importer China. About 80 million barrels of crude are set to suddenly hit the market should Hormuz fully reopen, threatening to leave refiners swamped.
