Oil prices surged by over 5% on Tuesday following a series of escalating events in the Middle East. Brent crude futures initially settled up $2.17, or 3.01%, to $74.16 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $1.89, or 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 after the U.S. revoked a general license authorizing the sale of Iranian oil, putting both benchmarks more than 5% above the previous day's settlement prices. This move by the U.S. came after Iran attacked three commercial vessels in the Strait of Hormuz, which was followed by U.S. military strikes against Iran. Concerns are high regarding the fragility of the ceasefire and potential for continued volatility, especially given the Strait of Hormuz is a critical chokepoint for global oil supply.
Financial analysts anticipate continued market volatility. Ajay Parmar, director of energy and refining at ICIS, noted that further attacks could sporadically appear, with even mere threats to close the Strait of Hormuz leading to significant price spikes. Bob Yawger, director of energy futures at Mizuho, stated that the U.S. decision to revoke the oil license was a signal that Iran had gone "too far," though he doesn't expect it to have a lasting impact on Iran's ability to export crude or broader agreement prospects. Giovanni Staunovo, an analyst at UBS, warned that renewed Middle East tensions and vessel attacks could lead to lower oil exports from the region.
The attacks highlight the continued risks in the Strait of Hormuz, with reports of a natural gas carrier, Al Rekayyat, being hit near Limah, Oman, causing a fire. Separately, Axios reported Iran fired at least two missiles at commercial ships, causing damage but no casualties. While the Strait had partially reopened after the U.S.-Iran war, traffic remains below pre-conflict levels, emphasizing the fragile de-escalation. Charu Chanana, chief investment strategist at Saxo Markets, remarked that these incidents remind investors that the "Middle East de-escalation trade is still fragile," and the market might "add back a little bit of the Hormuz risk premium."
Despite the immediate price surge due to geopolitical tensions, the broader market outlook remains less supportive in the long term. OPEC+ is increasing output, with Saudi Aramco lowering Arab Light to Asia for next month by $11 a barrel to $1.50 below a benchmark, a move previously seen during price wars in 2015 and 2020. Brent crude had previously sunk 30% in the second quarter as an interim peace deal between Washington and Tehran eased supply disruption concerns. The U.S. Energy Information Administration (EIA) is also expected to release its Short-Term Energy Outlook, which last month raised its 2027 forecast for U.S. crude production by 220,000 barrels a day to 13.83 million, indicating increasing supply. These factors contribute to a bearish market structure, signaling a loosening physical market in the near term.
