Oil prices increased by half a percent on Friday, positioning themselves for the largest weekly gain since mid-July. This rise was driven by escalating tensions between the US and Iran, which heightened fears regarding possible disruptions to oil supplies originating from the Middle East. The recent US attacks, resulting in numerous fatalities and injuries among individuals, including Iranian civilians, have led to the most severe confrontations between the two nations since July. The conflict, which commenced with US-Israeli strikes at the conclusion of February, has now progressed into its seventh month. Brent crude futures increased by 48 cents, or 0.5%, reaching $96 per barrel, while US West Texas Intermediate crude futures saw a rise of 55 cents, or 0.58%, settling at $92. Brent experienced an increase of more than 7% for the week, whereas WTI rose by 9.8%, positioning both benchmarks for their most substantial weekly gains since the week concluding on July 20.
Israeli Defence Minister Israel Katz reiterated his stance, asserting that Israel would “cripple” Iran’s military and civilian infrastructure, which encompasses energy facilities. US Vise President JD Vance stated on Thursday that Washington would refrain from engaging in discussions with Tehran unless Iran ceased its attacks on commercial shipping in the Strait of Hormuz. US President Donald Trump said on Wednesday that the renewed US campaign against Iran would not continue for “too long”. He said US forces had struck Iranian radar and missile systems. Trump also said the US had destroyed “all of the new equipment” Iran had sought to build along the Strait of Hormuz, including defensive and offensive systems. He described the attack as “very heavy” and said US forces were ready to launch another attack at any time.
Iran has broadened its roster of vessels deemed non-compliant, which may incur fines, confiscation, or detention should they attempt to navigate through the Strait of Hormuz. Iraqi ships continue to be among the limited number of vessels permitted by Tehran to navigate the strait. For oil markets, the duration of the disruption will be a critical determinant. JPMorgan estimates that each additional month of disruption could elevate Brent prices by approximately $7 to $8 per barrel. If the disruption persists for three months, the bank anticipates average monthly Brent prices to approach approximately $114 per barrel. Goldman Sachs has similarly cautioned that Brent may ascend to $120 a barrel should shipping disruptions through the Strait of Hormuz, the preeminent oil transit route globally, persist.
Its base case, however, posits that tensions in the Middle East will ultimately subside. The bank anticipates that Brent will average $80 a barrel in the fourth quarter and $75 a barrel in the following year, while acknowledging that the risks are skewed to the upside should disruptions in the Strait of Hormuz and the Red Sea continue longer than anticipated. Ponmudi R, CEO of Enrich Money, stated that crude prices would remain closely tied to developments surrounding the Strait of Hormuz. He stated that a sustained recovery in shipping flows could further diminish the geopolitical premium in crude and offer relief to emerging-market equities, whereas another disruption could swiftly reverse that trend.
