Oil settled at a five-week high after the US and Iran resumed direct strikes, with Tehran retaliating against Jordan, Bahrain and Kuwait. Traders are pricing in a direct military confrontation over the Strait of Hormuz just as US refiners run at record rates.
WTI for October delivery gained 0.9% to settle at $91.01 a barrel in New York on Wednesday. Brent for November settlement rose 1% to settle at $95.63 a barrel, its highest close since late July. The US conducted another round of strikes on Iran overnight, and President Donald Trump threatened more attacks if Tehran responded.
Strikes and retaliation escalate
Within hours of the overnight US strikes, Iran retaliated against Jordan, Bahrain and Kuwait, countries that host American forces. The US also struck two Iranian vessels on Tuesday under a new "tanker-for-tanker" policy approved by Trump, Axios reported, citing American officials, and about a day earlier two oil supertankers attempting to exit the Strait of Hormuz were reported to have been hit by projectiles.
Trump told reporters the renewed US campaign against Iran would not continue much longer after the biggest exchange of fire between Tehran and Washington since July. He said Iran had been trying to build a rocket that drops mines and that the US had destroyed it, along with radar and missile systems Tehran had been working to restore.
Traders price in confrontation
According to Rigzone: "The market is now clearly pricing in a direct military confrontation", said Arne Lohmann Rasmussen, chief analyst at Global Risk Management in Copenhagen. Crude prices remain about 30% higher since the war began in late February, and diesel and other refined products have rallied even harder because of the Middle East conflict and the ongoing war between Russia and Ukraine.
US Treasury Secretary Scott Bessent said 17 million barrels of crude exited Hormuz on Monday and that Iran doesn't control the strait. Energy Secretary Chris Wright reiterated that figure and added that exports are averaging about 8 million barrels a day. He said another 4 million to 5 million barrels a day are bypassing the waterway via pipelines.
US refiners run at record rates
The strain is already showing up at US refineries. Weekly data from the Energy Information Administration showed crude refinery runs soared to the highest in seven years. Meanwhile, gasoline imports fell to 370,000 barrels a day last week, below levels from the same period in 2020. In the Midwest, refineries are running at an unprecedented 103.5% of capacity to capture surging margins.
The escalating threat to Hormuz shipping imperils supplies of oil, refined products and gas, adding to inflation pressure on central bankers just as governments' strategic reserves have thinned from months of drawdowns.
Sources: Rigzone.com, Investing.com
Trading involves risk.
Risk Disclaimer
