Oil prices have risen above $90 a barrel, marking the first time in over a month, as renewed hostilities between the United States and Iran escalate in the Middle East. This surge is attributed to the impact on oil shipments through the critical Strait of Hormuz. Brent crude futures jumped by $2.77, or 3.14%, to $90.87, reaching its highest level since June 11. US West Texas Intermediate (WTI) crude also saw a significant increase of $2.35, or 2.85%, to $84.84, its highest since June 12.
The conflict intensified over the weekend of July 18-19, with the US conducting its ninth consecutive night of attacks against Iran. Concurrently, US allies Kuwait and Bahrain reported additional Iranian strikes. Both nations have targeted shipping traffic, with the US implementing a naval blockade on Iranian ports and Iran retaliating against vessels perceived as violating its rules in the Strait of Hormuz, a waterway that typically handles about one-fifth of global oil trade.
The Islamic Revolutionary Guard Corps claimed on Monday that two oil tankers exploded and were immobilized after attempting to use what they described as an unsafe southern route through the Strait of Hormuz, alleging US military encouragement for this passage. This incident could not be immediately verified by Reuters. Data from LSEG indicated that only four vessels transited the Strait of Hormuz on Sunday, a reduction from eight the previous day, with at least three oil products tankers and one Very Large Crude Carrier entering the strait since Friday to load oil.
Analysts are expressing concern about the market's potential complacency regarding the implications for oil inventories. Amarpreet Singh, an analyst at Barclays, noted that the coming days and weeks would clarify the sustainable level of oil exports from the region under renewed dual blockades. ING analysts highlighted that the persistent escalation in the Gulf, where the US and Iran continue to exchange deadly strikes, could lead to widespread attacks across the Gulf if left unchecked. The current situation suggests that oil markets may be underestimating the potential impact on inventories, which are currently at their tightest in five years.
Prices for Brent crude had already seen substantial gains in the preceding week, rising by 15.9% in the week ending July 19, marking the largest weekly increase since April. Similarly, front-month WTI prices gained 15.5% in the same period, the largest weekly ascent since early March. The overall market sentiment remains volatile as the conflict shows no signs of de-escalation.
