Oil Approaches $100 Amid New Escalation Around Hormuz
Brent crude prices neared $100 per barrel amid a new escalation between the US and Iran, uncertainty surrounding shipping through the Strait of Hormuz, and active purchasing of crude by China. The market is increasingly pricing in the risk of prolonged disruptions to oil supply from the Middle East.
On Tuesday, Brent rose above $98 per barrel, remaining less than $2 away from the psychologically important $100 mark. Last week, prices surged almost 10% after renewed hostilities between the US and Iran and attacks on vessels near the Strait of Hormuz. The Financial Times noted that the market is once again facing the prospect of a supply deficit after a period of relative calm.
Iran and Oman Prepare a New Route Through Hormuz
Trader attention has focused on negotiations between Iran and Oman on a temporary mechanism for commercial vessels to transit the Strait of Hormuz. Tehran announced that an agreement is expected to be signed in the coming days.
According to the Iranian side, the countries have already agreed on the map of a new international corridor that will pass through Iranian and Omani territorial waters. Previously, Tehran reported that the width of the temporary route would be about 11 km, with the entrance and part of the exit passing through Iranian waters.
At the same time, this agreement does not mean the full opening of the Strait of Hormuz. Iran insists on control over vessel passage and states that it is prepared to guarantee full resumption of shipping only after the cessation of American attacks and pressure. The exact rules of the new corridor and the conditions for its use have not yet been published.
Uncertainty has increased after US strikes on three Iranian oil tankers last weekend. Washington called them a response to attacks against American warships. Iran, in turn, warned ships of the risk of attacks in areas near Oman and is preparing to announce a new restricted zone around the strait.
China Intensifies Oil Purchases
The second factor supporting prices is active buying by Chinese refining companies. According to Bloomberg, they have increased demand for grades from Africa, Canada, and Latin America, which has already led to a rise in premiums for certain crude cargoes.
The Financial Times also notes stronger Chinese purchasing of Iraqi and Saudi crude. This is happening against the backdrop of shrinking available inventories: according to estimates cited by the publication, crude stocks outside China have fallen by more than 400 million barrels since the start of the conflict.
Still, the increase in Chinese imports does not yet signal a sustainable recovery in domestic demand. Some purchases may be related to stockpiling and a desire to take advantage of available cargoes amid an increasingly difficult supply situation.
Market Prices in Protracted Deficit Risk
The main risk to oil quotations remains the possibility of further reductions in flows through the Strait of Hormuz. A significant share of global oil supplies traditionally passes through this chokepoint, so even partial restrictions on shipping quickly affect prices, tanker insurance, and freight costs.
Additional pressure is being created by disruptions to refining operations in the Persian Gulf and Russia. According to the FT, the shortage is especially visible in refined products, where diesel prices are already outpacing crude oil considerably. Some market participants increasingly doubt that flows through key routes will return quickly to pre-war levels.
The future movement of Brent will now depend significantly on the details of the Iran-Oman agreement and Washington's response. If the new corridor does not reduce the risk of attacks and shipping restrictions, Brent settling above $100 per barrel will become a much more realistic scenario.
Source: Bloomberg, Financial Times, Al Jazeera
