Oil prices hit a three-week high on Wednesday as traders worried about the safety of ships passing through the Strait of Hormuz and continued problems with global oil supplies.
Iran gave a different account, saying that the waterway remained shut. Because traders are still unsure whether ships can safely travel through the Strait of Hormuz, the rise came mainly. Because they fear that the conflict could disrupt supplies, the geopolitical risk premium means traders are paying more for oil. Any major disruption in the Strait of Hormuz can therefore create serious concerns about global energy supplies and push oil prices higher.
“Confidence in safe passage remains low,” said Tim Waterer, chief market analyst at KCM, according to Reuters. He said shipping volumes remain far below normal levels and this uncertainty is keeping an extra geopolitical risk premium in oil prices. He also said the Strait of Hormuz was open, according to Reuters. Commercial shipping through the waterway remains heavily disrupted, said Ahmad Assiri, research strategist at brokerage Pepperstone. Assiri said disagreements over the conditions for ships to use the waterway are still continuing, keeping pressure on shipping activity.
US President Donald Trump said on Tuesday that no talks were taking place with Iran. The uncertainty increased after a temporary ceasefire agreement expired on Monday.
Iraq is also preparing new ways to move its crude oil as uncertainty around the region continues. The move could help Iraq keep its oil exports moving through alternative routes and outlets while shipping conditions remain uncertain. US oil inventory data is another factor traders are watching closely.
The new contracts will run for three months starting September 1, according to a statement issued after the cabinet meeting. Brent crude moving above $91 a barrel shows that traders are adding a higher risk premium to oil prices, Assiri of Pepperstone said, according to Reuters. He added that oil prices could potentially return to three-digit levels, meaning Brent could rise above $100 a barrel if risks around the region continue to increase. Analysts surveyed by Reuters expect US crude oil stocks to have fallen by about 600,000 barrels in the week that ended August 14, according to Reuters.
Because changes in US fuel inventories can give clues about demand and supply in the world’s biggest oil-consuming market, the API data is being watched by traders.
US crude oil and distillate inventories fell last week, while gasoline stocks increased, according to market sources citing data from the American Petroleum Institute (API). Iraq’s cabinet approved a system to export Iraqi crude through specialised international and local companies and through several export outlets, the Iraqi government said on Tuesday. The more important official US inventory figures from the Energy Information Administration (EIA) are due on Wednesday.
