But one analyst warns that physical market stress continues to be overlooked: File Image/Pixabay

U.S. president Donald Trump vowing powerful retaliation for a botched ‘surprise’ Iran attack against American forces in Jordan caused market players on Wednesday, who had been hoping for peace negotiations to take hold during a brief pause in hostilities between the two countries, to send oil prices spiralling upwards by nearly 7 percent.

As of 1224 GMT, Brent rose $5.84, or 6.9 percent, at $89.93 per barrel; West Texas Intermediate climbed $5.34, or 6.7 percent, at $84.60 per barrel.

Concerns about escalating Middle East hostilities were also stoked by Iran rejecting Oman's proposal for regional joint management of the Strait of Hormuz, as well as Iran-backed Houthis reportedly considering imposing charges on commercial vessels using the Bab el Mandeb passage in the Red Sea.

However, data showed  that while only a small number of vessels transited the Hormuz this week, five ships passing through Bab el Mandeb on Wednesday and 39 on Tuesday, the highest daily count since July 19 before the Houthis announced a maritime blockade of Saudi Arabia.

A healthy dose of skepticism about any prospect of peace between the U.S. and Iran was provided by Helima Croft, head of commodity strategy at RBC Capital Markets, who told clients “We remain exceedingly skeptical that we are on the brink of a major diplomatic breakthrough that will resolve the nuclear standoff that started the war five months ago or enable the normalization of maritime traffic.”

Bloomberg noted  that Wednesday’s dramatic oil price swing, coming on the heels of equally dramatic losses earlier this week, “have raised worries that inflation will reaccelerate, just when it had begun to slow more than economists expected...That in turn has traders uncertain about what the Federal Reserve will announce after its two-day meeting on interest rates concludes later in the day.”

CME Group calculated a 34 percent probability that the Fed will raise its main interest rate, the first increase in three years, which could slow the economy and affect demand.

Oil's recent price swings and a near-obsessive hope among pundits that peace with Iran is feasible has come at the cost of overlooking warning signs in physical markets, as far as Oilprice.com energy analyst Irina Slav is concerned.

Slav pointed out that record refining margins, tightening fuel supplies, and declining global inventories indicate growing stress in physical oil markets rather than futures.

Slav was bewildered by the market optimism  amid five months of broken ceasefire deals, rhetoric and strikes and counterstrikes, and warned that considering demand is outpacing supply for gasoline, diesel, and jet fuel supply, the time has come “for more attention to be paid to physical markets than to futures oil price charts.”