Brent and WTI crude rose to their highest levels in roughly three weeks after the United Arab Emirates suspended all financial and economic transactions with Iran. Shipping through the Strait of Hormuz remains slow, and U.S. crude inventories climbed 4.4 million barrels last week even as the geopolitical premium builds.
Brent and WTI hit three-week highs
Oil prices rose 1% on Wednesday and traded near a three-week high hit earlier in the session, as investors worried the Middle East crisis could escalate after the UAE decided to suspend all financial and economic transactions with Iran. Brent crude futures were up 87 cents, or nearly 1%, at $91.89 at 11 a.m. ET, while WTI crude futures were $1.17, or 1.4% higher, at $86.11 a barrel.
The session high for Brent was its highest since July 30, and WTI reached its highest since July 31.
Hormuz shipping stays slow amid standoff
Shipping through the Strait of Hormuz also remained slow, as most ship owners avoided the waterway because of a lack of clear signaling on its reopening from a blockade during the Iran war. According to Reuters: "Crude futures remain supported by the geopolitical tensions that remain in the Middle East", said Dennis Kissler, senior vice president of trading at BOK Financial.
On Tuesday, President Donald Trump said no talks were taking place with Iran and that the Strait of Hormuz was open, but Iran said the waterway remained shut. A temporary ceasefire agreement expired on Monday, and a senior Iranian official said the country was moving to a "fully offensive" military posture due to the diplomatic stalemate.
Traders price in a bigger risk premium
The Strait of Hormuz carried about one-fifth of global oil and liquefied natural gas supplies before the U.S.-Israeli war on Iran began at the end of February. Brent's move above $91 a barrel suggests traders are pricing in a higher risk premium, with prices potentially returning to three-digit levels, said Ahmad Assiri, research strategist at brokerage Pepperstone.
Meanwhile, oil shipments from Russia's western ports have fallen to about 2.3 million barrels per day in the first half of August, 15% below the initial loading plan, because of disruptions at the Black Sea port of Novorossiysk.
US inventories build despite tight supply concerns
In the U.S., crude inventories rose by 4.4 million barrels to 428.8 million barrels last week, the Energy Information Administration said, easing concerns about tight supplies. Gasoline inventories rose by 0.7 million barrels to 209.4 million barrels. Distillate stockpiles decreased by 1.5 million barrels to 105.6 million barrels over the same period.
Refiners have been snapping up crude barrels due to high margins, as Ukraine's attacks on Russia's refining sector kept global fuel supplies tight, Kissler noted. U.S. refinery utilization rates rose by 1 percentage point to 97.2% in the week.
Sources: Investing.com, Investing.com
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