Oil prices fell on Tuesday as Defense Secretary Pete Hegseth said the US ceasefire with Iran remained in place, allaying fears that the region could return to full-scale war following this week’s attacks on the United Arab Emirates.
international benchmark brent Crude oil futures were down more than 2% at $111.45 a barrel by 9:17 a.m. ET. west texas intermediate Futures fell more than 3% to trade at $102.65.
Oil prices rose more than 4% on Monday as the fragile ceasefire between the United States and Iran appeared to be nearing an end. Iran launched drones and missiles at the UAE, and the US government said it had sunk an Iranian ship in the strategic Strait of Hormuz.
Gen. Dan Cain, chairman of the Joint Chiefs of Staff, told reporters Tuesday that Iran’s attacks “are below the threshold for resuming large-scale combat operations at this time.” “The ceasefire is not over,” Hegseth said.
“Ultimately, it will be up to the president to decide whether this will lead to a violation of the ceasefire,” Hegseth said. “The ceasefire does hold for now, but we will be monitoring it very closely.”
Operation Holmes
The United States began operations on Monday to reopen the Strait of Hormuz to commercial traffic. Hegseth said two U.S. merchant ships had passed through the strait along with a U.S. destroyer, “showing that the shipping lanes are clear.”
“We know that the Iranian people are confused by this fact,” the defense secretary said. “They say they control the Strait, but they don’t.”
Danish shipping company Maersk announced that one of its vessels, the US-flagged Alliance Fairfax, crossed the Channel on Monday under the protection of the US military.
brent crude oil
But tensions remain high. President Trump warned on Fox News on Monday that Iran would be “blown off the face of the earth” if it targeted U.S. ships guarding commercial traffic in the strait.
Iranian Foreign Minister Abbas Araghchi said in a social media post that recent events in the strait “make it clear that there is no military solution to the political crisis.”
He added: “While progress is being made in negotiations thanks to Pakistan’s generous efforts, the United States should be wary of being dragged into the quagmire again by malicious actors. The UAE should do the same.”
OPEC oil producer Iraq is reportedly offering deep discounts to subscribers for crude loaded this month, but tankers will reportedly have to transit the Strait of Hormuz to retrieve the barrels, according to Bloomberg. CNBC has contacted Iraq’s Ministry of Oil and is awaiting a response.
“It’s not just about price”
Although global oil inventories have not yet reached deep lows, the pace of decline and uneven distribution of crude stocks across regions has raised concerns about localized oil shortages, Goldman Sachs said in a note on Monday.
The bank said readily available buffers in refined products are rapidly being depleted, particularly in petrochemical feedstocks such as naphtha and LPG and jet fuel.
Chevron CEO Mike Wirth warned on Monday that fears of fuel shortages are growing in some parts of the world as the Channel remains closed.
“When people see the reality that supply is so tight, I think it’s not just about price,” Wirth told CNBC’s David Faber at the Milken Institute Global Conference.
“Will we actually get the fuel? Over the next few weeks, you’re going to see these effects start to spread throughout the system,” he said.
Global oil inventories, including crude oil and refined products held both on land and at sea, are currently estimated at about 101 days of demand, which could fall to 98 days by the end of May, Goldman said.
While this figure remains above emergency standards, the overall figure hides severe shortages in certain regions and products, particularly in areas where export controls limit supply.
“Our estimates of the supply of refined products and national crude oil inventories indicate a high risk of product shortages in South Africa, India, Thailand and Taiwan,” the bank’s analysts said.
—CNBC’s Emma Graham contributed to this report.
