Oil prices experienced a significant jump this week, with Brent crude oil briefly surging past $95 per barrel for the first time in almost six weeks, marking a nearly 5% increase. US crude oil also rose by almost 5.1%, approaching $89 per barrel. Since the beginning of the month, oil prices have cumulatively gained 25% and are up over 50% year-to-date, largely reversing the decline that followed the US-Iran memorandum of understanding in mid-June.
The rally was primarily driven by escalating US-Iran tensions and renewed threats by Houthi rebels to shipping in the Red Sea, alongside attacks near the Strait of Hormuz. These developments have heightened concerns about severe supply disruptions in critical transit routes for global oil, specifically the Bab el-Mandeb and Hormuz straits. ING commodities analysts noted the Houthis' announced maritime blockade on Saudi Arabia is making shippers nervous, with several tankers considering re-routing to avoid the Bab el-Mandeb Strait, which would add significant time and expense to voyages to Asia.
The potential for oil supply disruptions has led to a deteriorating "Bab el-Mandeb risk picture," according to analysts at MarineTraffic, who reported verified U-turns by vessels near the Gulf of Aden due to heightened security threats. Ryan McKay of TD Securities highlighted that tightening fundamentals, including slower exports through Hormuz and risks in the Red Sea, support oil prices in the $90 to $100 range. A full blockade of Bab el-Mandeb could push prices $5 to $10 higher, potentially above $100 a barrel, according to Dan Pickering of Pickering Energy Partners. Goldman Sachs suggested Brent could even rally to more than $120 a barrel by the fourth quarter if supply disruptions persist, though their base case is $80 a barrel with expected de-escalation.
Several Saudi oil tankers adjusted course in the Red Sea following the Houthi rebels' “maritime embargo” declaration against Saudi Arabia. Five tankers loaded with Saudi oil either turned back in the Red Sea or the Gulf of Aden, with four of them diverting towards the Suez Canal. Helima Croft of RBC Capital Markets noted that Saudi Arabia has been diverting 4 to 5 million barrels of oil per day from the Persian Gulf via its East-West pipeline to the Red Sea port of Yanbu, emphasizing the critical role of these alternative routes. The widening scope of crude supply disruption suggests global transport risks will increasingly drive oil prices, leaving the market vulnerable if geopolitical tensions persist.
