Oil prices surged more than 6% in early trading as fears grew that the ceasefire between the United States and Iran could collapse. The US seized an Iranian cargo ship, and traffic through the critical Strait of Hormuz remained largely halted.
Brent crude futures rose $5.51, or 6.1%, to $95.89 a barrel, while U.S. West Texas Intermediate climbed $5.46, or 6.5%, to $89.31. Both contracts had fallen 9% on Friday.
Analysts noted that following Iran's announcement of an open Strait of Hormuz, tankers were fired upon by the Islamic Revolutionary Guard Corps. Sparta Commodities analyst June Goh stated, "Market fundamentals are getting worse, as 10-11 million barrels per day of crude oil remains shut in."
The US confirmed Sunday it seized an Iranian cargo ship attempting to breach a blockade, prompting threats of retaliation from Tehran. Iran also indicated it would not participate in further negotiations.
SEB Research analyst Bjarne Schieldrop commented, "The financial market is trading negotiations, improvements and resolution while at the same time the physical market is deteriorating day by day." Physical oil flows continue to be constrained by disruptions, longer transit times, and higher shipping costs.
Despite the tensions, over 20 ships passed through the strait on Saturday, marking the highest daily traffic since March 1.