Oil prices dropped to a two-week low on Tuesday, driven by prospects of increased oil supplies from the Gulf. Brent crude futures for November LCOc1 fell by $2.01, or 2%, to $98.33 a barrel. The WTI October contract CLc1, which expired on Tuesday, lost $2.50, or 2.61%, to $93.28 a barrel. The more actively traded November contract CLc2 was down $2.45, or 2.65%, at $89.92 a barrel. This downturn marks the fifth consecutive daily fall for oil prices.
The decline was largely attributed to reports that Iran might reopen the Strait of Hormuz within seven days, which Hamad Hussain, senior climate and commodities economist at Capital Economics, viewed as a positive sign for diplomatic efforts. Additionally, Saudi Arabia restarted operations at its East-West Pipeline and was expected to resume exports from its Red Sea port of Yanbu later on Tuesday. Earlier, Saudi Aramco had increased exports through the Strait of Hormuz, loading approximately 14 million barrels of crude onto seven supertankers in the Gulf on Sunday, as per tanker tracking data.
Despite the recent fall, oil benchmarks remain significantly elevated, with both Brent and WTI up more than 60% since the start of the year. Retail gasoline prices also reflect this, reaching a national average of $4.47 per gallon, a 50% increase since the Iran war began. Diesel prices, however, have seen record highs in Europe and the United States due to reduced exports from major producers like Russia and Saudi Arabia. Ole Hansen, head of commodity strategy at Saxo Bank, suggested that further significant downside in oil prices might be limited until supply, particularly of refined products, increases through the Strait of Hormuz.
Bank of America previously warned that Brent crude could spike above $150 a barrel if disruptions from the Iran war persist. They had raised their oil price outlook to $95 per barrel for the second half of the year but noted that prices could exceed $150 if supply disruptions continue or infrastructure is further damaged. Current disruptions through Hormuz have averaged between 4 million and 8 million barrels per day, down from a peak of 14 million barrels per day. Claudio Galimberti, chief economist at Rystad Energy, pointed out that Brent at $100 and diesel at $6.50 a gallon are already pressuring consumers, raising questions about whether this energy shock will remain primarily inflationary or lead to a slowdown.
