Oil prices surged following reports of US retaliatory strikes against Iranian targets, which occurred after recent missile attacks on commercial vessels in the Strait of Hormuz. Brent crude futures rose 1.1% to $72.77 a barrel, and US West Texas Intermediate (WTI) crude futures climbed 1.1% to $69.30 a barrel. The strikes ended a week-long pause in hostilities between the US and Iran, raising concerns about renewed confrontation in the strategically vital waterway, which is a key chokepoint for global oil transit. Analysts at Deutsche Bank noted that oil prices are back to pre-conflict levels, despite continued supply-chain stress in the Strait of Hormuz. In contrast, Asian stocks remained relatively steady, suggesting that investors believe the conflict might be contained.
The recent surge in oil prices was partially offset by signals of increasing global supply. The Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed on Sunday to increase production targets by 188,000 barrels per day starting in August, following similar increases in June and July. The United Arab Emirates (UAE) also boosted its crude production in June to over 3.8 million barrels per day, surpassing pre-Iran war levels. Additionally, Saudi Aramco reduced its August official selling price (OSP) for its flagship Arab Light crude for Asian customers to a discount, the first such move since 2020, indicating heightened competition for market share.
The geopolitical tensions were reignited by reports from Axios, citing US officials, that Iran's military fired at least two missiles at commercial vessels in the Strait of Hormuz. Separately, the UK Maritime Trade Operations agency reported that a tanker traveling near the Omani coast was struck by an unidentified projectile, causing a fire. While Iran hasn't formally claimed responsibility, state television sources indicated the target was a natural gas tanker. These incidents underscore the fragility of the de-escalation efforts in the Middle East, as noted by Charu Chanana, chief investment strategist at Saxo Markets, who stated that "the market may add back a little bit of the Hormuz risk premium, but doesn’t look like we are pricing in a full disruption yet."
Despite the immediate price jump, the broader market outlook remains less supportive of sustained high oil prices. Warren Patterson, head of commodities strategy for ING Groep NV, suggested that any bounce from a contained US response would likely be short-lived given the bearish sentiment and weakness in the physical market. The Brent-Dubai market structure has shifted into contango, a bearish pattern indicating a looser near-term physical market. The US Energy Information Administration (EIA) is expected to release its Short-Term Energy Outlook, which last month raised its 2027 forecast for US crude production to 13.83 million barrels a day. Overall, while tensions in the Strait of Hormuz provide some upward pressure, increased supply and a fragile peace deal continue to cap significant price gains.
