Oil prices are heading for a weekly drop, with Brent crude falling 1.5% to $74.13 a barrel and West Texas Intermediate also down 1.5% to $70.87. This decline comes despite an attack on a Singapore-flagged container ship southeast of Oman, which briefly pushed both benchmarks up over 2% in the prior session, renewing concerns about safe passage through the vital Strait of Hormuz.
The broader trend indicates oil futures are on track for a third weekly loss, largely due to an acceleration of transits through the Strait of Hormuz and increased supply. Prior to the attack, openly transiting the waterway had added millions of barrels to the global market following initial progress toward a lasting agreement to end the US-Iran war. Goldman Sachs Group noted that Gulf exports are now running at almost two-thirds of normal levels, and visible global inventory declines have slowed.
The incident took place amid a complex situation where the International Maritime Organization (IMO) paused evacuation operations in the strait due to safety concerns. Notably, the attack occurred hours after Iran threatened vessels not to use routes through the strait without Tehran's permission. While some ships, with US military support, had been exiting the strait, Iran's Persian Gulf Strait Authority maintained that any transit outside its declared framework would not be protected by "safe-passage guarantees."
Persian Gulf producers, including the United Arab Emirates, Kuwait, and Qatar, have been rapidly increasing output, but face challenges in securing tankers. Iraq, for instance, was forced to halt production at a key field due to a tanker shortage and is seeking a higher OPEC quota. These supply dynamics, combined with the efforts to normalize transit through the Strait of Hormuz, are contributing to the downward pressure on oil prices, bringing them to pre-war levels despite the occasional geopolitical flare-up.
