Oil prices surged following escalating tensions between the US and Iran, triggered by a deadly Iranian strike in Jordan that killed two US service members and injured others. Brent crude, the international benchmark, briefly broke above $90 per barrel, while West Texas Intermediate (WTI) traded around $84.44. Gasoline prices at US pumps climbed back to $4 per gallon, reflecting an 18% surge in US crude oil for the month. This price hike is attributed to fears of disrupted shipping through the Strait of Hormuz, a critical oil transit chokepoint, and significantly depleted global oil inventories.
The Strait of Hormuz has seen vessel flows essentially grind to a halt, with only two visible outbound oil tankers and no inbound traffic reported by LSEG data. This disruption compounds concerns about global supply, especially as the US Strategic Petroleum Reserve (SPR) releases, which have buffered the market during the conflict, are set to cease by the end of the month. Emergency oil stocks are at their lowest levels since 1983, despite an initial release of 172 million barrels from the SPR following an announcement by President Trump this month, and about three-quarters of a planned 400 million barrel release by International Energy Agency member countries.
Analysts are expressing increased concern about market complacency and the potential for further price spikes. Amrita Sen of Energy Aspects noted that substantial slowdowns in the Strait of Hormuz combined with depleted inventories could push oil prices past $100 per barrel. Goldman Sachs reiterated its $100 Brent scenario, especially after Iran declared the Strait closed following a strike on a cargo vessel and subsequent US retaliatory actions. Helima Croft of RBC Capital Markets emphasized that the region is far from normalization, and Kyle Bertamini of Enverus highlighted that markets are currently underpricing the tightness in global supply, predicting crude and product stocks will continue to draw down into the fourth quarter, warranting "higher-for-longer" oil prices.
The current geopolitical situation has unwound previous de-escalation efforts, including a memorandum of understanding between the US and Iran. Iran's recent actions, including a strike on a power plant in Kuwait and damage to other facilities, have led to US retaliation and the re-imposition of a naval blockade. These developments, along with reports that frequent SPR withdrawals are straining the reserve system, underscore the increased vulnerability of the oil market to supply disruptions. Speculators have increased their net long positions in ICE Brent, buying 114,752 lots in the last reporting week, indicating further anticipation of price increases.
Global crude oil stocks stood at approximately 317 million barrels as of July 10. Prior to the conflict, the US Strategic Petroleum Reserve held about 415 million barrels, more than half its capacity. With Gulf oil exports, which had briefly recovered to over 80% of pre-war levels, now halted, and the potential for major importers like China to increase demand, the market faces significant upward pressure on oil and fuel prices. This dramatic drop in available supply necessitates higher prices to curtail demand.
