West Texas Intermediate (WTI) US Oil trades higher on Friday, rising 0.76% to around $83.30 after staging a sharp rebound from an intraday low below $80.00. The Crude Oil has erased some of its weekly losses and is on track to finish the week close to its opening levels after the bearish gap seen at the start of the week.
Market sentiment has improved as investors reassess the impact of shipping disruptions through the Strait of Hormuz. According to CommBank, Oil tanker traffic through the strategic waterway has recovered to around 30%-35% of its pre-conflict level. A broader normalization of flows could ease pressure on global supply, explaining part of the heightened volatility seen in recent days.
However, geopolitical risks continue to provide strong support for Oil prices. Ongoing tensions between Iran and the United States (US) remain a major source of uncertainty, while threats to energy infrastructure and key shipping routes continue to maintain a geopolitical risk premium in the market.
Fundamentals also remain supportive. The latest data from the US Energy Information Administration (EIA) showed a larger-than-expected decline in US Crude Oil inventories, highlighting a still-tight market and relatively low stock levels.
Meanwhile, investors are awaiting this weekend’s Organization of the Petroleum Exporting Countries and allies (OPEC+) meeting. Several analysts expect the group to approve a modest increase in September production targets, although they stress that the implementation of these supply increases will largely depend on the Strait of Hormuz remaining open and Gulf producers being able to fully restore export flows.
Middle East tensions and constrained flows keep crude market tight
According to TD Securities, the “supply situation [is] remaining constrained in energy markets,” with flows via “Hormuz, Bab el-Mandeb and Russia all remain materially constrained, with global seaborne exports again sitting near the lowest levels since the war began.” The bank argues that this “reduced flows and global tightening of the energy market” is “supportive of further upside in crude oil,” even as positioning remains mixed across the complex. TD notes that “CTAs are quiet in crude today, but could turn modest buyers of Brent crude above $91.60/bbl,” adding that “CTAs could turn buyers of Brent crude oil, but are sellers of gasoline on the day,” with “CTAs…selling RBOB gasoline on the day.”
Commerzbank likewise stresses that “it remains clear that the regional escalation of the Middle East conflict puts additional pressure on the global oil market,” and warns that developments in the region are “likely to remain a key driver of commodity market sentiment and oil prices in the weeks ahead.” In its view, “given this situation and the absence of clear de-escalation signals, oil prices are likely to remain elevated for the time being,” though it cautions that “recent weeks have demonstrated that even tentative progress in US-Iran relations can exert substantial downward pressure on prices.”
On the supply side, Commerzbank highlights fresh OPEC headlines, noting that “this Sunday, the seven core OPEC+ countries will meet and are expected to raise the production targets for September once again by around 188,000 barrels per day, before likely pausing further increases.” However, it underscores that “the implementation of previously announced production hikes ultimately depends on the Strait of Hormuz remaining open and Gulf producers being able to restore export flows.” At the same time, the bank points out that “this underlines the increasingly tight inventory situation in the US, which is likely to limit the scope for crude oil exports,” reinforcing the broader narrative of a tightening global market.
