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Crude oil prices inched down at the end of the week but are still on course to end it with gains as the disruption to exports from the Middle East extends to a third week.
At the time of writing, Brent crude was trading at $106.71 per barrel, after it started the week around $103. West Texas Intermediate was trading at $93.58 a barrel, down from over $99 a barrel at the start of the week.
The dip at the end of the week came on the back of statements from world leaders acknowledging the need to restore tanker flows via the Strait of Hormuz, although they stopped short of suggesting exactly how this could be done. In addition, a statement from U.S. Treasury Secretary Scott Bessent that Washington considered lifting sanctions on Iranian crude in floating storage and the suggestion that further barrels could be released from the strategic petroleum reserve also helped pressure prices.
Statements are all very well, but the implementation of the ideas contained in them may prove quite challenging, even if the strait is reopened tomorrow. The reason is that such extensive disruption to oil and gas production cannot be reversed overnight—something that traders do not appear to consider for now.
“The damage has been inflicted, and even if safe passage for tankers is somehow negotiated through Hormuz, reviving logistics fully fledged can take an awfully long time,” Phillip Nova analyst Priyanka Sachdeva said, as quoted by Reuters. “Till then, any direct hit on export infrastructure or tanker routes could push prices sharply higher, while sustained diplomatic engagement may cap rallies and accelerate the unwinding of the war premium,” she also said.
Given that the latest news out of the Middle East is about yet more Israeli strikes on Iran despite President Trump’s public assurances that he had asked the Israelis to stop, the chances of any diplomatic engagement appear quite remote.