Oil prices surged by more than 4% in Asian trading on Monday, with Brent crude futures rising to over $79 per barrel, their highest level in more than three weeks. This jump followed a weekend of escalating tensions between the United States and Iran, which included US airstrikes on Iran and subsequent Iranian missile and drone attacks on US allies in the region, such as the UAE, Qatar, Kuwait, Oman, and Bahrain. The renewed conflict has raised concerns about the closure of the Strait of Hormuz, a crucial shipping lane for approximately 20% of the world's oil and liquefied natural gas.
The escalation has led to a significant decrease in maritime traffic through the Strait of Hormuz. Shiptracking data indicated only six vessels transited the strait on Sunday, a sharp decline compared to the 18-22 daily crossings observed earlier in the month. This slowdown has heightened fears of oil supply tightness through the third quarter, with market analysts like those at ANZ noting that hopes for a quick resolution to the skirmishes are now in doubt. While the US insists the strait remains open, Iran has claimed it is closed, further contributing to market uncertainty.
Despite the recent surge, analysts do not anticipate oil prices reaching the much higher levels seen earlier in the war, which saw Brent crude top $120 a barrel. Brent crude for September delivery stood at $78.82 a barrel as of 08:00 GMT on Monday, marking a 9% increase from before the initial US and Israeli strikes on Iran in late February. Market analyst Fabien Yip from IG suggested that while a risk premium will keep prices supported, a repeat of earlier spikes is unlikely due to slow demand recovery and an oversupplied outlook from stranded-tanker releases and OPEC+ output quota expansions. Mukesh Sahdev of XAnalysts expects Brent prices to remain in the upper $70s through August and September amidst geopolitical uncertainty.
