(Bloomberg) — Oil rose again, heading for its biggest gain in more than a week, after Iranâ€™s seizure of a British tanker fanned concerns of a confrontation that could disrupt Middle East supplies.
Brent futures added 2% to trade near $64 a barrel in London. The U.K. demanded the immediate release of the Stena Impero, which was taken by Iranâ€™s Revolutionary Guard Corps in the Strait of Hormuz on Friday, though British Defense Minister Tobias Ellwood said in a Sky News Interview that he wanted to de-escalate the situation. The incident comes as U.S. sanctions on Iran heighten political tensions in the oil-rich region.
Oil volatility rose to a two-week high on Friday after the tanker seizure highlighted the risk of flows through the worldâ€™s most critical crude choke-point being disrupted. Nonetheless, prices lost more than 6% in London last week, their sharpest pullback in more than a month, on concerns that a slowing global economy will continue to weigh on oil demand.
See also: How a Persian Gulf Conflict Could Impact Commodities Markets
â€œWeâ€™re just not seeing prices react very stronglyâ€ to the situation in the Gulf, â€œprimarily because of this macroeconomic backdrop and the concerns the oil market has about what that means for global oil demand,â€ Richard Mallinson, an analyst at consultant Energy Aspects Ltd., said in a Bloomberg television interview.
Brent for September settlement rose as much as $1.6, or 2.5%, to $64.03 a barrel on the ICE Futures Europe Exchange and traded at $63.73 as of 10:44 a.m local time. The global benchmark crude traded at a premium of $7.01 to its American counterpart, WTI, for the same month.
West Texas Intermediate for August delivery added $0.96, or 1.73%, to $56.59 a barrel on the New York Mercantile Exchange. The contract fell 7.6% last week.
While the U.K. government has threatened Iran with â€œserious consequencesâ€ over the tanker seizure and advised British ships to avoid the area, ministers on Sunday sought to dial down the rhetoric. Tensions have flared after a tanker carrying Iranian oil was seized by U.K. forces near Gibraltar in early July. Around a third of all seaborne crude flows through the Strait of Hormuz.
Libyan oil production is set to recover from a five-month low as the North African supplierâ€™s biggest field restarts following a brief halt.
The countryâ€™s crude production fell to about 1 million barrels a day, after a valve in a pipeline carrying crude from the Sharara field to the Zawia refinery was closed. The valve was re-opened Sunday night, the state-run National Oil Corp. said. The declaration of force majeure — which was lifted Monday — removed 290,000 barrels a day of production, it said in an earlier statement.
–With assistance from James Thornhill.
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