BY COMFORT OGBONNA
Oil prices rose early Wednesday as uncertainty over a potential peace agreement between the United States and Iran, combined with attacks on commercial shipping in key Middle Eastern waterways, increased concerns about disruptions to global crude supplies.
Brent crude futures rose 72 cents, or 0.81%, to $89.63 a barrel by 0053 GMT. U.S. West Texas Intermediate crude gained 71 cents, or 0.85%, to $83.91 a barrel.
Both benchmarks settled more than $1 higher on Tuesday, reaching their highest closing levels since July 31. The gains extended a sharp rally that began Monday, when oil prices jumped about 5% as expectations for a diplomatic breakthrough between the United States and Iran weakened.
The latest price increases followed separate reports of attacks involving shipping in the Strait of Hormuz and the Bab el-Mandeb Strait, two strategically important waterways for global energy transportation.
The Strait of Hormuz is particularly important to the oil market because large volumes of crude and petroleum products pass through the waterway each day. Any prolonged disruption could tighten global supplies and put additional upward pressure on prices.
Iran’s top security official, Mohsen Rezaei, said Tuesday that the Strait of Hormuz would remain closed unless the United States accepted Iran’s conditions for ending the conflict. Those conditions include the release of frozen Iranian assets and an end to other conflicts across the region.
Shipping activity through the waterway has already declined sharply. Data showed that only six vessels passed through the Strait of Hormuz on Monday, compared with an average of about 11 vessels during the previous 10 days. Before the conflict began, daily traffic through the waterway averaged between 125 and 140 vessels.
The sharp decline in shipping activity has increased concerns among traders about the potential impact on global energy supplies, particularly if the disruption continues for an extended period.
However, developments in the U.S. domestic oil market provided some relief for concerns about supply shortages.
U.S. crude inventories increased sharply during the week ended Aug. 7, according to preliminary industry data. Market sources citing data from the American Petroleum Institute said crude stockpiles rose by about 9.1 million barrels.
The increase was significantly larger than analysts had expected.
At the same time, U.S. gasoline inventories declined by about 1.5 million barrels, while distillate stocks, which include diesel and heating oil, fell by approximately 596,000 barrels.
The unexpected increase in crude inventories could ease some concerns about tight supplies in the U.S. market if the figures are confirmed by official government data.
Haitong Futures said the large inventory build, if confirmed, could reduce some of the market’s concerns about supply tightness.
Investors are awaiting the official U.S. inventory report, which is scheduled to be released Wednesday morning by the Energy Information Administration, the statistical arm of the U.S. Department of Energy.
The report will provide a more detailed picture of crude production, imports, exports and fuel demand and could influence oil prices in the near term.
Despite the increase in U.S. crude inventories, the longer-term outlook for Middle Eastern supplies remains a significant concern for the market.
The Energy Information Administration expects disruptions to Middle Eastern crude oil supplies of roughly 600,000 barrels per day to continue through the end of 2027.
The potential for prolonged supply disruptions means geopolitical developments will remain a major factor in oil markets. Any progress toward a ceasefire or reopening of key shipping routes could reduce the risk premium built into crude prices, while further attacks or an extended closure of major waterways could push prices higher.
For now, traders are balancing concerns about geopolitical supply disruptions against evidence of increased crude availability in the United States.
The direction of oil prices in the coming sessions is likely to depend heavily on developments surrounding the U.S.-Iran conflict, shipping activity through the region’s critical waterways and the latest U.S. inventory figures.
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