Brent eases despite US–Iran tensions remaining elevated

The front-month ICE Brent contract has declined by $3.38/bbl on the day, to trade at $88.28/bbl at 09.00 GMT.

IMAGE: Oil storage tanks. Getty Images

Upward pressure:

Brent crude’s price is poised to end this month almost 20% higher than June, as the crisis in the Middle East continues to escalate.

Echoing Iran’s playbook in the Strait of Hormuz, Yemen’s Houthi militants are planning to impose a toll fee on commercial vessels attempting to transit the Bab al-Mandeb Strait into the Red Sea.

“Tanker traffic through the Bab al-Mandeb Strait has slowed, given the risk of attack from the Houthis in Yemen,” two analysts from ING Bank noted.

Bab al-Mandeb is another vital oil chokepoint, like the Strait of Hormuz, carrying about 7% of global seaborne oil flows.

Fresh attacks in the region threaten to deepen the global energy crisis, as traffic through the Strait of Hormuz is already facing severe disruption.

Downward pressure:

The drop in Brent’s price comes despite little improvement in tensions between the US and Iran.

According to market analysts, the weakness in oil prices can be attributed to the slightly improved vessel traffic through the Strait of Hormuz.

“Though [vessels transiting through the strait] still in single digits, there are also reports that the shuttling of oil across the strait has resumed,” ING Bank’s analysts remarked.

‘Shuttling of oil’ refers to tankers making short-distance trips to move crude oil across or out of the Persian Gulf, often to transfer it to larger vessels or bypass disrupted areas.

“This will not be detected by tracking data, given that transponders will be turned off,” ING Bank’s analysts said.

Moreover, US energy secretary Chris Wright claimed in an interview with Bloomberg that 13 million b/d of oil left the Persian Gulf over the past week

Considering Wright's claim - with roughly half moving through the strait and the remainder diverted through bypass pipelines - ING Bank’s analysts noted that this volume still translates to roughly 65% of pre-war levels.

By Aparupa Mazumder

Please get in touch with comments or additional info to news@engine.online