Oil prices surged, with Brent crude futures settling up $2.17 (3.01%) at $74.16 a barrel and U.S. West Texas Intermediate (WTI) crude rising $1.89 (2.76%) to $70.44 a barrel. Post-settlement, Brent climbed an additional $1.72 to $75.88 and WTI jumped $1.76 to $72.20, pushing both benchmarks more than 5% higher than their previous day's settlement prices. This escalation came after Iran fired at least two missiles at commercial ships transiting the Strait of Hormuz, damaging two vessels, and the US subsequently launched retaliatory strikes and revoked a general license that had authorized the sale of Iranian oil, tightening sanctions and impacting Tehran's revenue.
The attacks in the Strait of Hormuz, a critical chokepoint for global oil and liquefied natural gas shipments, highlighted renewed geopolitical risks. Analysts like Charu Chanana from Saxo Markets noted that the "Middle East de-escalation trade is still fragile," and while a full disruption isn't priced in, some risk premium is being added back to oil prices. Warren Patterson of ING Groep NV stated that the incidents show the region is "still far away from normalization," and any oil price bounce from a contained US response would likely be short-lived due to bearish sentiment and a weak physical market.
Adding to supply concerns, Saudi Aramco announced a reduction in Arab Light prices for Asia next month by $11 a barrel to $1.50 below a benchmark, a move last seen during price wars in 2015 and 2020. This decision followed OPEC+ members, including Saudi Arabia, agreeing to raise output quotas. The US Energy Information Administration (EIA) is set to release its Short-Term Energy Outlook, which last month raised its 2027 forecast for US crude production by 220,000 barrels a day to 13.83 million, reflecting earlier price rallies. However, the broader market outlook remains cautious, with the Brent-Dubai market showing contango, a bearish pattern indicating a looser near-term physical market.
