FACTBOX: ICE Brent surges over 5% as US-Iran ceasefire appears to collapse

Oil prices soared on July 8, with front-month ICE Brent briefly topping $80/barrel as US President Donald Trump said the fragile US-Iran ceasefire was "over" following fresh attacks on ships in the region and after Iran threatened to once again close the pivotal Strait of Hormuz.

Speaking at a NATO summit in Turkey after Washington and Tehran traded military strikes, Trump said "as far as I'm concerned, it's over," adding that negotiating with Tehran's "evil" leadership was "a waste of time". He also floated a potential takeover of Iran's key Kharg Island oil terminal.

Trump also said that Iran's bridges, electricity plants and desalination plants were potential targets for renewed attacks.

Later, Iran threatened to close Hormuz to all maritime traffic in case of further US military strikes, according to state-run Press TV, stressing the country's ongoing "management" of the chokepoint, which previously hosted 20 million b/d of crude and products.

On July 7 the US revoked a license allowing Iran to sell oil internationally and hit targets in Iran, and three tankers came under attack in the Strait of Hormuz, through which crude flows have surged since the 60-day June ceasefire.

Renewed attacks spooked oil markets still recovering from Q2 supply disruptions to crude, LNG, products, fertilizers, metals and other commodities and days after crude prices returned to pre-war levels.

Prices

• Front-month ICE Brent crude futures settled 5.2% higher at $78.02/b July 8 on the apparent ceasefire breakdown. The contract traded as high as $80.59/b intraday, up 8.7% from the previous close.
• ICE Brent crude futures backwardation widened -- a signal of prompt market tightness -- with the M1/M2 timespread ending the session at 45 cents/b, out from 4 cents/b on July 7. The spread was in a 25 cent/b contango on July 6.
• Prompt-dated NYMEX WTI crude, the US futures price, ended the session 4.4% higher at $73.52/b, after trading as high as $76.08/b intraday.
• The physical Dated Brent benchmark was assessed by Platts, part of S&P Global Energy, at $78.355/b on July 8, up 9.02% on the day but still down from an Iran war peak of over $144/b in early April.
• The Brent-Dubai spread started to react July 8 following the attacks, rising 21% day over day to $4.24/b, albeit still well below the $21/b it soared to in April.
• European natural gas prices spiked early July 8, with the August benchmark Dutch TTF contract trading up about 5.9% day over day at Eur49.315/megawatt-hour as of 0923 GMT, according to Intercontinental Exchange data.
• The July ICE low sulfur gasoil futures contract, used as the basis for middle distillate prices, reached $1,018/mt in European morning trading hours, up 4.6% from the previous close at $973/mt. The contract has not closed above $1,000/mt since June 11.
• Analysts have spent the past month slashing price forecasts on expectations that the US-Iran ceasefire would hold. The US EIA cut its Q3 Brent outlook by $27/b to $74/b July 7, while JP Morgan, Barclays, Morgan Stanley and UBS all cut their outlooks for this year and next, projecting the benchmark to average between $63/b-$85/b in 2027.
• Saudi Arabia had cut its August official selling prices for Arab Light to Asia and Europe by $11/b and $15/b, respectively, its steepest reduction in over 20 years.
• Kathleen Brooks, research director at XTB, said in a July 8 note that market participants are hoping the latest flare-up will "get ironed out." "For the Brent crude oil price to extend gains above $80 per barrel, we would need to see another US naval blockade of the Strait of Hormuz, which would stop Iran from selling its oil and cause a major escalation in tensions," she said.

Infrastructure

• Drones targeted three ships in the Strait of Hormuz on July 6 and July 7, according to the UK Maritime Trade Operations Centre, in the first confirmed attacks since late June.
• Among them was the Al Rekayyat LNG tanker, according to Qatar's foreign ministry. Platts reported the vessel was carrying Qatari LNG bound for India.
• Saudi Arabia's Bahri said in a statement the Wedyan crude tanker "was involved in an incident" while exiting the strait on July 7.
• While some vessels have been using a route close to Oman to transit the strait, many others have been turning off their location signals, according to data from S&P Global Commodities at Sea. Tehran has insisted that vessels use its designated route.
• On July 8, Iranian state TV said explosions had been heard at Kharg Island, the country's main oil hub, as well as on Qeshm Island and in the southern port cities of Sirik and Bandar Abbas.
• "We attacked Kharg Island last night," Trump said July 8. "I said, 'don't touch the oil' because maybe we'll take over Kharg Island...There's not a thing they can do about it."
• There have also been reports of strikes on military targets in Bahrain and Kuwait on July 8.
• Oil product stockpiles at Fujairah, outside the Strait of Hormuz, had been rebounding in recent weeks as more ships traversed the chokepoint since the ceasefire. The total was at a three-month high as of July 8 after hitting record lows for most of April and May, while heavy distillates have jumped more than fourfold from their record low on June 1, according to data compiled by S&P Global Energy.

Flows

• The US-Iran MOU spurred more confidence among ship owners to traverse the Strait of Hormuz. Traffic climbed to 94 ships on June 24, the most since Feb. 27, one day before the war started, according to S&P Global Commodities at Sea data. The total was still below the February peak of 165 ships on Feb. 18.
• In all, 48 vessels traversed the strait on July 8, according to the latest S&P Global Commodities at Sea report on daily transits, compared to 47 the previous day.
• Countries in the region have also explored alternative routes, such as pipelines to Yanbu on the Red Sea and Fujairah port for Saudi Arabia and the UAE respectively.
• Flows of crude from the Persian Gulf hit 9.12 million b/d in June, according to CAS data, up from 4.02 million b/d in May. That compares to over 19 million b/d prior to the conflict.
• On July 7, the US revoked a June 22 general license allowing the sale of Iranian crude and refined products, which had been due to be in effect until late August.