Oil prices fell as markets analysed supply flows through key transit points in the Middle East
Oil prices fell as markets sought clues about supply flows in the Middle East. Despite the escalation of attacks in the Gulf, oil prices erased some of their earlier gains on Thursday as investors' focus shifted to supply flows through key transit points in the region.
Brent futures fell 96 cents, or 1.06%, to $89.78 a barrel as of 04:18 GMT. WTI fell 64 cents, or 0.76%, to $83.82 a barrel.
Brent had closed up 7.91% and WTI up 6.56% in the previous session; this was one of the sharpest gains since the Iran war and marked a rebound after Tuesday's 5% drop following a ceasefire in the five-month conflict.
Prices surged after Trump threatened on Wednesday that he would retaliate "very hard" against Iran following Tuesday's missile attack on a US base in Jordan.
On Wednesday, the US and Saudi Arabia attacked Iranian-backed paramilitary forces in Iraq; this marked the first time Saudi Arabia publicly participated in US airstrikes in retaliation for drone attacks on Saudi oil targets launched from Iraq. This ended a lull in US attacks against Iran that began over the weekend.
Trump's "hard retaliation" rhetoric caused an immediate price increase, but the market appears to have fully priced it in. Geopolitical headlines trigger rapid price increases, but these gains are usually short-lived because actual supply flows and parallel diplomatic efforts determine how long these upward price movements will last.
Prices are being capped because, despite the near-complete closure of the Strait of Hormuz, crude oil supply continues to come from the important Gulf region. It is estimated that approximately 13 million barrels of oil per day are still leaking markets from the Gulf.
Despite the Iranian-backed Houthi militias in Yemen imposing a naval blockade on Saudi Arabia in the Red Sea on July 20, disrupting shipments through the Bab el-Mandeb Strait, some cargo, particularly via Chinese-linked tankers, has continued to reach markets.
Although overall volumes have decreased, oil continues to reach markets from the region through multiple channels, and additional solutions are being explored. The longer this situation persists, the more these alternative routes and methods will diminish Iran's influence over the Strait of Hormuz.
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