Key Takeaways
- Brent crude futures fell by about 1 percent, settling at $84.23 per barrel.
- US West Texas Intermediate futures declined by 0.8 percent, closing at $78.95 per barrel.
- Iran has asked Yemen’s Houthi movement to be prepared to close the Red Sea oil route if attacked.
Oil prices dipped slightly on Thursday as tensions in the Middle East escalated, with Brent crude futures settling about 1 percent lower at $84.23 per barrel and US West Texas Intermediate (WTI) futures falling by 0.8 percent to close at $78.95 per barrel.
The decline followed a period of strong gains earlier in the week, with both contracts hitting one-month highs as traders adjusted their positions following an intensification of hostilities between Iran and the United States.
Ed Hayden-Briffett, an oil research analyst for The Officials, explained that investor positioning had been very short when the situation started to worsen this week. He noted that as investors cut their short positions earlier in the week, the market lost some steam after hitting one-month highs.
The fragile truce reached in June has collapsed, disrupting energy flows through the Strait of Hormuz, which handled about a fifth of daily global oil and LNG trade before the conflict began. Iran has now asked Yemen’s Houthis to be ready to close the Red Sea oil route if the US strikes Iranian power infrastructure.
Alex Hodes, director of energy market strategy at brokerage StoneX, warned that with the Strait of Hormuz already closed, this new threat raises the serious risk of both primary oil export routes in the Middle East being disrupted simultaneously. He stated: 'Simultaneous disruptions affecting Hormuz and Bab el-Mandeb would significantly amplify supply chain stress, increase tanker availability constraints, and raise insurance premiums.'
Kpler data showed that about 7.4 million barrels of petroleum transited Bab el-Mandeb per day in June, accounting for about 7 percent of global oil output, up from 4.2 million bpd last year. Wael Makarem, financial markets strategist lead at Exness, added: 'This would raise significant concerns for the global energy market.'
On Wednesday, the US struck Iran’s coastal defenses and missile sites after reimposing a naval blockade of its ports. Tehran threatened to shut off more regional energy exports, saying it was engaged in an ‘existential war’ with America. The exchange of fire between Iran and the US on Thursday kept upward pressure on prices.
Weighing on prices was also Iran’s release of a US citizen, which could point toward a path to averting all-out war. However, the market remains cautious as tensions remain high.
Iraqi crude loadings more than doubled in the first half of July, averaging roughly 1.2 million barrels per day, according to Kpler data and a source with direct knowledge of the flows, as exports accelerated following months of restricted shipments.
Investor positioning in the oil market was very short when the situation started to worsen in the Middle East this week, and that seems to have slowed as investors that got burnt in the rally cut their short positions earlier in the week.
Ed Hayden-Briffett, Oil research analyst for The Officials
'Simultaneous disruptions affecting Hormuz and Bab el-Mandeb would significantly amplify supply chain stress, increase tanker availability constraints, and raise insurance premiums.'
Wael Makarem, Financial markets strategist lead at Exness
