Oil prices soared above $90 a barrel on Monday, with international benchmark Brent crude for September delivery climbing approximately 2.54% to top $90, and US West Texas Intermediate (WTI) crude for August delivery rising roughly 2.29% to $84.38. This surge marks Brent's highest price since June 11, extending significant gains after a 15.9% increase in the week ending July 19. The sudden price hike is a direct consequence of intensifying US-Iran tensions and renewed hostilities in the Middle East, which have significantly impacted oil shipments through the critical Strait of Hormuz.
The escalation follows a series of events, including the confirmed death of a third American service member and a ninth consecutive night of US strikes against Iranian targets, including coastal surveillance, air defense systems, and maritime assets. American forces also targeted Islamic Revolutionary Guard Corps units linked to a recent attack on US personnel in Jordan. In response, Iran's Revolutionary Guard Corps stated that two oil tankers had exploded and become immobilized after attempting to transit an "unsafe southern route" through Hormuz, asserting that the strait would remain unsafe as long as US "aggression" continued. The renewed conflict has led to the unravelling of a recent ceasefire agreement between the two nations, which had temporarily eased concerns about the Strait.
The global crude market faces significant tightening as Gulf exports dwindle and the Strait of Hormuz, a crucial oil transit route handling one-fifth of global oil, has been effectively closed by Iran. Vessel crossings in the strait fell to a three-week low, with only four transits on Sunday, down from eight the previous day. Analysts like David Roche of Quantum Strategy predict that at the current rate of depletion, oil inventories will become tight by September, even stressing the US market. Kyle Bertamini from Enverus also noted that crude and product stocks, which previously stabilized energy markets, have drawn significantly and are expected to continue drawing into the fourth quarter, potentially leading to "higher-for-longer" oil prices. Goldman Sachs estimates that Gulf oil exports, which had recovered to over 80% of pre-war levels post-ceasefire, have now halted.
Adding to supply concerns, the US Strategic Petroleum Reserve (SPR) and other strategic global stockpiles have been significantly depleted. The US, which initially had about 415 million barrels in its SPR, drew down 172 million barrels to combat the disruption, bringing current US crude-oil stocks to around 317 million barrels as of July 10, their lowest levels since 1983. Member countries of the International Energy Agency (IEA) also agreed to release 400 million barrels from their emergency reserves, with almost three-quarters already deployed. Analysts express concern about the ability to continue these drawdowns, indicating that the traditional shock absorbers for the market are eroding. Higher oil prices are expected to quickly translate into more expensive gasoline and diesel, increasing inflation risks globally.
