Oil prices have surged due to escalating tensions in the Strait of Hormuz, a critical waterway for global oil shipments. Brent crude jumped above $86 per barrel, and U.S. West Texas Intermediate futures rose to $79.91 per barrel. This comes after reports of Iranian missile strikes on two UAE tankers, the Mombasa and Al Bahyah, operated by ADNOC L&S, resulting in one fatality and multiple injuries among the crew. This incident, along with decreased vessel traffic through the strait, has pushed oil's rally to approximately 12% since Friday, reflecting a higher geopolitical risk premium.
Further compounding supply concerns, President Trump has proposed a 20% fee on cargo transiting the Strait of Hormuz. Analysts from Lipow Oil Associates estimate this fee could add about $16 per barrel to the cost of oil shipped through the strait. While details on the implementation of this fee remain unclear, it signals a heightened risk of disruptions. Citi analysts warned that this move could also increase the possibility of broader military confrontation, which would further undermine the expectation of a comfortably supplied global oil market.
Vessel traffic through the Strait of Hormuz has significantly decreased, with Kpler data showing only 14 ships crossing on Sunday, including four crude tankers, compared to 37 a week earlier. MarineTraffic reported a more than 50% drop compared to the previous week. This reduction in traffic raises fears that if exporters cannot ship crude, storage tanks could fill up, forcing producers to halt production and leading to a much greater effective supply loss. Experts like Rory Johnston of Commodity Context noted that the earlier "ample stock cushion" has been depleted, leaving the market more vulnerable.
Analysts predict a potential move to $100 per barrel for oil if physical shortage risks become increasingly apparent. This contradicts earlier forecasts by the International Energy Agency, which expected an oil market surplus by late 2026, an outlook that depended on the gradual recovery of tanker traffic through the strait. The current situation, marked by attacks and proposed fees, suggests that those surplus forecasts are now in jeopardy, especially if the strait were to shut down completely.
