Oil Prices Surge 4% as US Official Accuses Iran of Lacking Sincerity in Negotiations

Oil prices surged by 4% on Wednesday, driven by escalating conflict in the Middle East.

This marks the eleventh consecutive night of US military strikes against Iran.

The Strait of Hormuz, a critical chokepoint for oil shipments, remains a central sticking point in negotiations between the US and Iran.

In the early hours of Wednesday, the US military completed its eleventh consecutive overnight airstrike on Iran. This action, combined with statements from US Secretary of State Marco Rubio that the Strait of Hormuz issue is difficult to negotiate, sent international oil prices up by 4%.

Shortly after 4 a.m. Eastern Time, the international benchmark Brent crude July futures price jumped nearly 4% to $94.23 per barrel. The US near-month West Texas Intermediate (WTI) crude futures rose 3.8% to $87.46 per barrel.

Intercontinental Exchange data showed September Brent crude futures trading at $93.96, up $2.95 or 3.24%.

Speaking at an ASEAN foreign ministers' meeting in the Philippines on Wednesday, US Secretary of State Marco Rubio stated that the US remains willing to resolve disputes through diplomatic channels but accused Iran of violating the consensus reached by both sides regarding the Strait of Hormuz.

"The core issue at present is that Iran simply lacks sincerity in negotiations. The US adheres to the principle of reciprocity: if Iran genuinely negotiates, the US will also show sincerity; if not, we will take all necessary measures to safeguard the interests of the United States and its allies."

The US Central Command conducted its eleventh consecutive overnight military strike against Iran on Tuesday night.

This round of strikes targeted multiple Iranian military command centers, maritime combat facilities, aircraft hangars, drone storage depots, and military logistics infrastructure. The US military stated that the airstrikes aimed to further degrade Iran's ability to blockade commercial shipping in the Strait of Hormuz.

In his Wednesday remarks, Rubio noted that the Strait of Hormuz is a vital lifeline for global crude oil and critical material transportation and remains the biggest obstacle in bilateral talks. He accused Iran of seeking control over the waterway's jurisdiction, warning that if Iran achieved this goal, it would set an extremely dangerous and negative precedent for the world.

In a research note on Wednesday morning, Deutsche Bank analyst Jim Reid wrote: "Over the past 24 hours, US-Iran talks have made no progress, and market focus has shifted back to inflation concerns. Brent crude's closing price has returned above $90 per barrel for the first time in a month, reigniting fears of a widespread stagflationary shock. Oil prices rose further above $92 in early trading today, with no signs of a pullback following the US announcement of the completion of the eleventh overnight strike on Iran."

Persistently high energy prices are fueling increased market bets on aggressive monetary tightening by the Federal Reserve.

Reid added: "At Tuesday's close, market pricing indicated the probability of a Fed rate hike in July had rebounded to 26%, reaching a new high since the unexpected drop in US CPI data. Before the CPI release, the probability was 45%, which fell to 10% immediately after the data was published."

As of Wednesday morning, data from the CME FedWatch Tool showed the market pricing in a 24.1% probability of a Fed rate hike this month, with a 69% chance of at least a 25-basis-point hike by September.

In a report on Wednesday morning, ING stated that as hopes for a temporary US-Iran ceasefire fade, supply risks are accumulating in the energy market.

"Supply chain disruptions are not limited to the Middle East. Regarding the Black Sea route, the Caspian Pipeline Consortium (CPC) terminal has now halted the receipt of Kazakh crude oil. Following a series of tanker attacks, all loading operations at the terminal have been suspended."

"The longer the suspension lasts, the higher the probability that Kazakhstan will be forced to cut crude oil production capacity. This terminal's capacity is significant, with average daily crude oil loadings reaching 1.7 million barrels in June."