Brent Extends Gains on Supply Risks

Brent crude climbed toward $96 per barrel on Friday and was on track for a gain of around 9% this week, underpinned by renewed hostilities in the Middle East and growing uncertainty surrounding shipping through the Strait of Hormuz. The US carried out fresh strikes against Iran this week following roughly a month of relative calm, prompting Tehran to retaliate by targeting American bases in the region and vessels passing through Hormuz. Six commodity vessels transited the strait on Wednesday, down from 11 on Tuesday and compared with a 10-day average of nearly 13. Damage to refineries in the Middle East and Russia, coupled with limited capacity elsewhere to compensate for supply disruptions, is also expected to keep global fuel prices elevated into next year. Meanwhile, US diesel prices reached their highest level since mid-2022 this week, while inventories in Europe remain well below seasonal norms.

Brent rose above $95.50 a barrel on Thursday, extending a rally on Iran continued strikes against US Gulf allies. Kuwait’s armed forces said the kingdom was facing “ongoing Iranian aggression” as its air defenses engaged missiles and drones. Iran retaliated after US strikes on Tuesday by targeting US regional allies Jordan and Bahrain. Six commodity vessels transited the Strait of Hormuz on Wednesday, down from 11 on Tuesday and compared with a 10-day average of nearly 13. Japan’s Mitsui O.S.K. Lines, the world’s largest tanker operator, expects disruptions at the Strait of Hormuz to persist longer than previously anticipated, with no normalization by year-end following this week’s renewed escalation in hostilities. Damaged refineries in the Middle East and Russia, along with insufficient capacity elsewhere to offset supply disruptions, are likely to keep global fuel prices elevated into next year.

Brent was slightly higher above $96 a barrel on Thursday, hovering at six-week highs as investors continued to monitor the situation in the Middle East, including the evolving strikes and their impact on oil supplies through Hormuz. Iran claimed overnight strikes on US bases in the region and Israel indicated that it was prepared to return to the fighting if necessary. Meanwhile, US President Trump said on Wednesday that the renewed hostilities in the Middle East would not last “too long”. Despite the escalation, there were signs that crude supplies were still reaching the market. Six commodity vessels transited the Strait of Hormuz on Wednesday, down from 11 on Tuesday and compared to the 10-day average of nearly 13, according to Reuters. In addition, Iraq’s oil exports increased in August, with exports expected to rise further in September. On the other hand, Russia intends to begin reducing oil production this year, according to the country's Deputy Prime Minister Novak.