Oil Rebounds After Trump Rejects Iran Proposal; Brent Rises to $103 a Barrel

Brent crude futures rise to $103 a barrel

Israel says conflict with Iran is not over

International oil prices turned higher again on May 11 as Israel warned that its conflict with Iran was not over and President Donald Trump rejected an Iranian proposal to end the war involving the US and Israel, renewing concerns over disruptions to energy supplies.

Israeli Prime Minister Benjamin Netanyahu said on May 11 that the conflict with Iran was "not over yet." With Middle East tensions rising, July Brent crude futures, the global benchmark, climbed 2.5% to $103.89 a barrel as of 12:40 p.m. London time. June West Texas Intermediate crude futures also gained 2.5% to $97.88 a barrel.

Trump rejected Iran's proposal to end the war involving the US and Israel. "I just read the response of Iran's so-called 'delegation,' and I don't like it. It is absolutely unacceptable," he said.

In an interview with CBS's "60 Minutes" on May 10, Netanyahu said Iran still had "nuclear material and enriched uranium that must be eliminated." He added that there were enrichment facilities that needed to be dismantled, Iranian-backed proxy forces and ballistic missiles Iran was seeking to produce.

Asked how the US and Israel would remove the nuclear material, Netanyahu replied: "You go in and take it out."

Citigroup analysts said in a recent report that oil prices could rise further if Iran and the US fail to reach an agreement. High crude inventories, releases from strategic petroleum reserves, weaker demand from developing countries and signs of easing tensions in the Middle East have helped cushion the oil market, the analysts added.

Citi said risks to oil prices remained tilted to the upside because Iran retained significant control over the timing and conditions of any agreement to reopen the Strait of Hormuz.

The bank expects both sides to reach an agreement to reopen the Strait of Hormuz around late May, but said a delay or only a partial reopening could prolong the disruption.

Felipe Elink Schuurman, chief executive officer and co-founder of Sparta Commodities, compared current oil market conditions to those seen during the 2020 pandemic.

Schuurman told CNBC on May 11 that global oil demand in 2020 fell by an average of 9 million barrels a day from 2019 levels, roughly in line with the current supply reduction. In that case, the market will adjust and demand destruction on a similar scale will follow.

"The question is where that demand destruction will occur," he said. Even if crude does not rise to $200 a barrel, prices for products consumers buy could increase by that magnitude, he said. Poorer countries would face a humanitarian crisis, Europe an economic crisis and the US a political crisis, he added.

Kim Jung-a, guest reporter at Hankyung.com, kja@hankyung.com