Brent crude broke above $100 per barrel on Wednesday as renewed fighting between U.S. and Iranian forces pushed fears of a long-term oil supply disruption to new highs. West Texas Intermediate also moved higher, trading around $96 a barrel.
The latest round of conflict saw Iran strike 10 ships in and around the Strait of Hormuz. The U.S. responded by sinking five Iranian oil tankers in the Persian Gulf. Iran then struck a U.S. base in Jordan.
Crude flows through the Strait of Hormuz have taken a sharp hit. Before fighting resumed, daily outflows ran between 8 and 9 million barrels. That number has now dropped to below 2 million barrels per day, according to data from Rystad Energy cited by Reuters.
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According to shipping data firm Kpler, not a single very large crude carrier has exited the strait since September 2.
Some Middle Eastern producers have rerouted crude through pipelines to ports outside Hormuz. The UAE is using a pipeline to the port of Fujairah. Iraq is sending oil through a pipeline to Turkey. Saudi Arabia reversed flows on its East-West pipeline to reach the Red Sea port of Yanbu.
But those alternative routes are now under threat too. Yemen’s Houthi group, backed by Iran, attacked Saudi energy infrastructure this week. The Jizan refinery was hit in the latest strike. Other refineries on the Arabian Peninsula have also come under attack.
ANZ analysts said in a note that tit-for-tat attacks suggest oil flows from the Persian Gulf are likely to remain disrupted for the foreseeable future.
The International Energy Agency’s latest monthly report said 8.3 million barrels per day of Middle East oil production remained shut in as of July. Global oil inventories fell by 69 million barrels that same month, an average daily draw of 2.7 million barrels.
Several physical crude benchmarks are already above $100. Murban crude, DME Oman, the OPEC basket, and the Indian basket are all trading above that level. Brent futures have now joined them.
President Trump told reporters on Wednesday the war will end after the midterm elections in November. However, a Wall Street Journal report said Trump’s top advisers warned the conflict could continue through the rest of his term.
There are no reports of peace negotiations between Washington and Tehran. Demand for crude typically rises in the final quarter of the year, which could push prices higher if supply remains constrained.
Brent was trading at $101.22 a barrel as of Thursday morning.
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