London [UK], July 19: Brent crude may need a prolonged disruption through the Strait of Hormuz or clear evidence of tightening global oil inventories to climb above $90 a barrel, despite heading for its biggest weekly gain since April as escalating tensions between the United States and Iran continued to fuel concerns over Middle East energy supplies.
The global benchmark was trading around $85 a barrel on Friday and was on course to post a weekly gain of about 11 percent, while US West Texas Intermediate (WTI) crude hovered close to $80. Oil prices have risen to near their highest levels in about a month after renewed military exchanges between Washington and Tehran disrupted regional supply chains and curtailed tanker movements through the Strait of Hormuz, the vital waterway that handles around one-fifth of global oil shipments.
Despite heightened geopolitical risks, Brent has struggled to move beyond this week's peak of $87.55 a barrel, even after the conflict widened across the region and reports indicated that no oil tankers transited the Strait in either direction on Thursday.
Chris Weston, Head of Research at Pepperstone, said the market's muted response suggested investors still believed there was room for diplomacy.
"The question now is what additional catalyst is required to push Brent through Tuesday's highs and towards $90 when so much negative news has already been priced in," Weston said.
He said a sustained rally above $90 would likely require clear evidence that global inventories were tightening significantly and growing confidence that the US and Iran were moving further away from negotiations, leading to a prolonged disruption in the Strait of Hormuz.
Market reaction has remained relatively restrained despite the scale of military escalation. The US launched another wave of strikes on Iran this week, while Tehran responded by targeting US military bases in Kuwait, Jordan and Bahrain. Qatar also said its armed forces intercepted missiles aimed at the country.
Nevertheless, Brent crude spent much of the week trading within a relatively narrow range, reflecting investors' belief that the conflict may not lead to a prolonged interruption in oil supplies.
"One might reasonably have expected Brent crude to push above this week's highs of $87.55 and make a run towards $90, yet the opposite is true," Weston said, noting that the market had remained comfortably within Tuesday's trading range for three consecutive sessions.
Analysts said the oil market's ability to absorb increasingly aggressive rhetoric and repeated military exchanges indicated that traders continued to expect diplomatic efforts to eventually resume.
The Strait of Hormuz remains the key focus for energy markets because around 20 percent of global crude and petroleum products pass through the narrow waterway. Although visible tanker traffic has slowed considerably, some cargoes continue to move through ship-to-ship transfers near Oman.
Concerns over the security of shipments intensified after Iran targeted vessels carrying UAE crude earlier this week. In response, the UAE reportedly sold between eight million and 10 million barrels of offshore crude to Asian refiners for loading outside the Strait, reducing exposure to potential disruptions.
Meanwhile, two Iran-linked tankers carrying cooking fuel have repeatedly altered their course in the Gulf of Oman and the Arabian Sea as the US tightened its naval blockade.
The impact of the conflict is also spreading beyond crude markets. Profit margins for US refiners have climbed to record highs as diesel and gasoline supplies tightened, while fuel markets in Europe have also shown signs of increasing strain.
At the same time, Russian fuel exports have declined after Ukrainian attacks on refineries prompted Moscow to impose restrictions on diesel exports, adding another layer of pressure to global fuel markets.
Analysts warned that if these supply disruptions persist, higher energy costs could eventually filter through to petrol prices, airline fares, freight charges and consumer goods, adding to inflationary pressures worldwide.
Weston said markets largely viewed Yemen's Houthi movement as acting in line with Iran's broader regional strategy rather than independently. As a result, fresh threats to Saudi Arabia's energy infrastructure have not triggered the kind of panic buying witnessed during previous Middle East crises.
He added that traders believed any meaningful improvement in US-Iran relations would likely prompt Tehran to restrain Houthi attacks, helping to contain risks to regional energy infrastructure.
Looking ahead, market participants are closely watching two key developments: whether global oil inventories begin declining rapidly enough to signal a genuine supply shortage, and whether diplomatic efforts collapse, resulting in a longer-lasting disruption to shipping through the Strait of Hormuz.
Until either of those scenarios materialises, analysts believe Brent crude is likely to remain below the $90-a-barrel threshold despite one of the most volatile geopolitical environments the global oil market has faced this year.
Source: Qatar Tribune