Oil prices turned lower on Thursday as traders engaged in profit-taking while evaluating the implications of new US strikes on Iranian military installations. These strikes have escalated fears of a renewed full-scale conflict and potential supply disruptions in the Strait of Hormuz. Despite the dip, Brent crude futures, currently around $84.51 a barrel, and US West Texas Intermediate (WTI) futures, at approximately $79.37 a barrel, remain near one-month highs, having gained about 11% this week.
Geopolitical risks are firmly supportive of oil prices, though analysts note a "wait-and-watch approach" from traders after a strong rally. The focus has shifted to tangible disruptions in oil flows and how the US and Iran will respond in the coming days. The concern is heightened by declining US commercial oil inventories, which are at their lowest levels since 2022 and seasonally since 2018, making the market more vulnerable to supply shocks.
Attacks in the Strait of Hormuz have deepened supply disruptions in the waterway, which previously handled about a fifth of the world's oil and liquefied natural gas trade. The US reimposed a naval blockade on Iranian ports, leading to a sharp decrease in vessel transits; only seven crossed on Wednesday, down from 13 the previous day. Goldman Sachs projects that Brent could exceed $110 a barrel in the fourth quarter if Gulf export recovery remains stalled, but could fall into the $60s by year-end if tensions ease and production recovers more rapidly.
Iran has threatened to close the Bab el-Mandeb gateway to the Red Sea via its Houthi allies, potentially opening a new front against Washington and jeopardizing another critical energy artery. Russia has also temporarily halted diesel exports, tightening the global market for the fuel, with US diesel futures hovering around $4 a gallon, the highest since late May, and European refiners seeing unprecedented margins for diesel production.
The US conducted its fifth consecutive day of attacks on Iran on Thursday, following previous strikes on an oil tanker near Iran's main export terminal. Tehran responded by firing upon American bases in Kuwait and Jordan, with Jordan reporting the interception of eight missiles. Despite ongoing mediation efforts and a consensus that a full-scale war is unlikely, analysts from Nissan Securities Investment suggest WTI could still rise to $85-$87 depending on how the conflict develops.
