LONDON: Oil prices hovered around $110 a barrel on Tuesday as a deadline imposed by U.S. President Donald Trump loomed for Iran to open the Strait of Hormuz or be "taken out".
Brent crude futures were down 95 cents, or 0.9%, at $108.82 a barrel by 0920 GMT. U.S. West Texas Intermediate crude futures hit a four-week high at over $116 a barrel earlier in the session, but erased those gains to trade down 11 cents, or 0.1%, at $112.30.
Typically WTI trades at a discount to Brent, but this has reversed in a market where barrels for earlier delivery command a higher price. The benchmark WTI contract is for May delivery while Brent is for June delivery.
Trump has given Iran until 8 p.m. in Washington (midnight GMT) to reopen the Strait of Hormuz, through which about a fifth of global oil supply is normally shipped. Iranian forces effectively shut the strait after U.S. and Israeli attacks began on February 28.
If Tehran fails to comply, Trump said "every bridge in Iran will be decimated" by midnight EDT (0400 GMT) on Wednesday and "every power plant in Iran will be out of business, burning, exploding, and never to be used again".
Responding to a U.S. proposal through mediator Pakistan, Iran rejected a ceasefire and said a permanent end to the war was necessary, pushing back against pressure to reopen the strait. Exports from several Gulf producers have already collapsed due to restricted flows through the Strait of Hormuz, sending oil prices soaring.
This resulted in financial windfalls to Iran, Oman and Saudi Arabia, while other states that lack alternative shipment routes have lost billions of dollars, a Reuters analysis found. The U.N. Security Council is expected to vote on Tuesday on a resolution to protect commercial shipping in the strait, but in significantly watered-down form after veto-wielding China opposed authorizing force, diplomats said.
Alongside the unusual U.S. crude oil futures premium over Brent, the conflict has sent spot premiums for WTI crude surging to record highs as Asian and European refiners scramble to replace Middle Eastern flows. Saudi Arabia's state oil company Aramco raised the official selling price of its Arab Light crude to Asia for May delivery, setting a record premium of $19.50 a barrel above the Oman/Dubai average.
Meanwhile, Russia on Monday said Ukrainian drones hit the Caspian Pipeline Consortium's terminal on the Black Sea, which handles 1.5% of global oil supply, but Kazakhstan's energy ministry said on Tuesday that oil shipments there were stable. OPEC+ agreed on Sunday to lift oil output quotas by 206,000 bpd in May, though the increase will be largely notional as key members cannot boost production because of the Hormuz closure. - Reuters
