The ongoing six-month conflict between the US and Iran has escalated significantly with reciprocal attacks on oil tankers, leading to heightened concerns about global oil supply. US forces struck three Iranian oil tankers, including one near Kharg Island, while Iran's navy targeted three tankers in the Strait of Hormuz and US vessels in other waters. This "major escalation" has commercial tankers deliberately used as instruments of economic pressure, weakening the distinction between military and commercial shipping. The fighting last week was the heaviest since July, with Washington stating it will not negotiate until attacks cease.
The increased geopolitical tension has caused a substantial reduction in shipping traffic through the Strait of Hormuz, a critical chokepoint for about 20% of the world's oil supply. On Saturday, only two commodity vessels crossed the strait, and the 10-day average has dropped to around 10 ships per day, down from a recent pace of 15 and the lowest since May. Iran plans to announce a restricted zone outside the strait, further shrinking the shipping corridor. Analysts at Danske Bank and ING expect continued disruptions and a well-supported oil market, with ING noting Tehran's plans could put additional vessels in the Gulf of Oman at risk.
Despite the rising tensions, OPEC+ decided on Sunday to keep its October oil production policy unchanged, opting to review 2027 quota baselines before making further adjustments. This decision removed a potential supply response to the worsening tanker disruptions, further contributing to the supply-risk premium in crude oil prices. October WTI crude oil futures are trading near $92, after settling Friday at $91.48, up $0.18 or 0.20%. November Brent is near $96.80, after closing at $96.28, up $0.76 or 0.80%. On Monday, Brent crude futures climbed $0.79, or 0.82%, to $97.07 a barrel, while US West Texas Intermediate crude was at $92.28 a barrel, up $0.80, or 0.87%.
Commercial crude inventories fell by $4.5 million barrels last week, a larger-than-expected draw and the first in five weeks, while refineries ran at 98% capacity, a rate not seen since 2018. Diesel prices reached a record near $5.85 a gallon in the US, squeezed by Middle East disruptions and attacks on Russian refineries. Meanwhile, Iraq is struggling to sell its Basra crude from inside the Persian Gulf this month after its state oil-marketing company SOMO sharply raised prices by slashing discounts, a move that could jeopardize its oil flows amid the conflict.
