Oil snaps back
Crude roared back on Monday. WTI climbed $4.86 to $92.22 a barrel, a gain of 5.3%, while Brent added $3.86 to reach $94.98. The bounce undid a good slice of the selling that had pushed prices down for most of the previous two weeks.
The spark came out of Tehran. Iran's semi-official Tasnim news agency said the government had broken off its indirect contacts with Washington, pointing to Israel's widening campaign against targets in Lebanon. Tehran argues those strikes tear up the current ceasefire. It then reached for its most familiar pressure point and warned it could seal the Strait of Hormuz entirely.
Why Hormuz still matters
Close to a fifth of the oil that moves by sea used to pass through Hormuz before fighting erupted in late February. The narrow channel between Iran and Oman has been mostly closed since, though a handful of tankers had lately begun slipping through under Iranian escort. The first vessels crossed in three months toward the end of May, and the market had started to bet on a gradual reopening.
Monday's warning throws that bet into question. Futures leapt by more than $6 a barrel right after the Tasnim story broke, then eased back to hold most of the move into the afternoon.
Missiles and a fraying truce
The collapse in talks landed alongside fresh fighting. US Central Command reported that its forces knocked down two Iranian ballistic missiles headed for American bases in Kuwait late Sunday. Nobody was injured and nothing was damaged, the command said. Even so, the episode capped yet another weekend of exchanges between the two militaries, despite a truce each side had called intact.
That mix is what spooked traders. Only days earlier, oil slid as the market treated Washington's strikes as leverage for a deal rather than a march toward wider war. Iran's walkout turns that thinking inside out.
What it means for prices
The war premium is back, at least for today. Even after the recent slide, crude still trades near 30% above its pre-war level. Natural gas broke ranks on Monday, easing 3.5% to $3.18 per million British thermal units as buyers piled into oil instead.
Where prices head next rests on whether Tehran acts on the Hormuz threat or simply keeps rattling it. Actually closing the channel would squeeze barrels out of Saudi Arabia, Iraq, Kuwait and the UAE, not only Iran. A return to the table would bleed the premium back out just as quickly.
Expect traders to track every word from Washington and the mediators, plus any sign of naval movement in the Gulf. Until something breaks, the easier path for prices runs upward.