Crude pared intraday surge as Israeli peace talks clash with severe Saudi supply destruction

Crude futures pared intraday gains to close modestly higher as speculative relief over Israeli-Lebanese peace talks clashed with severe physical supply destruction in Saudi Arabia and a persistent Hormuz blockade.

Oil prices closed higher in volatile Thursday trading, retreating from earlier surges above $100 after Israel announced imminent direct peace negotiations with Lebanon. Despite the bearish paper reaction to these diplomatic developments, the underlying physical market remains critically constrained by the fragile US-Iran ceasefire and escalating regional kinetic strikes.

US WTI crude rose $3.46 (3.7%) to settle at $97.87 a barrel, falling from an intraday peak of $102.70. Concurrently, the international Brent contract gained $1.17 (1.2%) to close at $95.92. Both benchmarks subsequently surged more than $1 a barrel in post-settlement trading as the market digested severe structural damage to regional supply infrastructure.

The immediate physical deficit deepened substantially following confirmed kinetic strikes on Saudi Arabian infrastructure, which reduced the Kingdom's oil production capacity by approximately 600,000 barrels per day and curtailed East-West Pipeline throughput by 700,000 bpd. While crude loadings at the Red Sea port of Yanbu have reportedly continued, the broader regional supply matrix remains highly compromised, exacerbated by further missile and drone attacks across Kuwait, Bahrain, and the UAE.

Transactional paralysis in the Strait of Hormuz continues to severely restrict global flows, with vessel traffic falling below 10% of normal volumes. Iran has asserted strict territorial control over the heavily mined transit corridor, driving physical crude grades to fresh all-time highs as shippers await clear operational protocols and grapple with elevated logistical barriers.

Written by: Aiman Haikal