Oil prices hit a three-week high on Wednesday as traders worried about the safety of ships passing through the Strait of Hormuz and continued problems with global oil supplies.
Brent crude oil futures rose 45 cents, or 0.49%, to $91.47 a barrel by 0754 GMT. US West Texas Intermediate (WTI) crude futures also gained 45 cents, or 0.53%, to $85.39 a barrel, Reuters reported. Brent reached its highest level since July 30, while WTI touched its highest level since July 31.
The rise came mainly because traders are still unsure whether ships can safely travel through the Strait of Hormuz. “Confidence in safe passage remains low,” said Tim Waterer, chief market analyst at KCM, according to Reuters. He said shipping volumes remain far below normal levels and this uncertainty is keeping an extra geopolitical risk premium in oil prices. The geopolitical risk premium means traders are paying more for oil because they fear that the conflict could disrupt supplies.
US President Donald Trump said on Tuesday that no talks were taking place with Iran. He also said the Strait of Hormuz was open, according to Reuters. Iran gave a different account, saying that the waterway remained shut. The uncertainty increased after a temporary ceasefire agreement expired on Monday.
A senior Iranian official told Reuters that Iran was moving towards a “fully offensive” military posture because diplomatic efforts had reached a stalemate. However, there were no reports of strikes by either side on Tuesday, Reuters reported.
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Strait of Hormuz remains the key concern
The Strait of Hormuz is one of the world’s most important energy routes because a huge amount of oil and liquefied natural gas passes through it. Before the US-Israeli war on Iran began at the end of February, the waterway carried about one-fifth of global oil and liquefied natural gas supplies, Reuters reported.
Any major disruption in the Strait of Hormuz can therefore create serious concerns about global energy supplies and push oil prices higher. Commercial shipping through the waterway remains heavily disrupted, said Ahmad Assiri, research strategist at brokerage Pepperstone. Assiri said disagreements over the conditions for ships to use the waterway are still continuing, keeping pressure on shipping activity.
Shipping through the Strait of Hormuz slowed further on Wednesday, data showed. Most shipowners were avoiding the waterway because they were not confident about the safety and conditions for ships travelling through it, Reuters reported. The continued slowdown in shipping is important for oil markets because fewer ships moving through the route can increase fears about supply shortages.
Iraq looks for other ways to export oil
Iraq is also preparing new ways to move its crude oil as uncertainty around the region continues. Iraq’s cabinet approved a system to export Iraqi crude through specialised international and local companies and through several export outlets, the Iraqi government said on Tuesday.
The new contracts will run for three months starting September 1, according to a statement issued after the cabinet meeting. The move could help Iraq keep its oil exports moving through alternative routes and outlets while shipping conditions remain uncertain.
Oil could cross $100
Brent crude moving above $91 a barrel shows that traders are adding a higher risk premium to oil prices, Assiri of Pepperstone said, according to Reuters. He added that oil prices could potentially return to three-digit levels, meaning Brent could rise above $100 a barrel if risks around the region continue to increase.
US oil stocks also in focus
US oil inventory data is another factor traders are watching closely. US crude oil and distillate inventories fell last week, while gasoline stocks increased, according to market sources citing data from the American Petroleum Institute (API). The API data is being watched by traders because changes in US fuel inventories can give clues about demand and supply in the world’s biggest oil-consuming market.
The more important official US inventory figures from the Energy Information Administration (EIA) are due on Wednesday. Analysts surveyed by Reuters expect US crude oil stocks to have fallen by about 600,000 barrels in the week that ended August 14, according to Reuters.
A fall in crude inventories could give oil prices further support if it shows that US oil supplies are tightening. For now, uncertainty around the Strait of Hormuz remains the biggest driver of the market, with traders watching shipping activity, the Iran conflict and US inventory data for the next direction of oil prices.
