Oil prices pulled back on Friday after a week of sharp gains driven by attacks on shipping near the Strait of Hormuz and the Bab el-Mandeb Strait. Brent still headed for a roughly 9% weekly gain above $100 a barrel, while tanker rates for the largest crude carriers hit record highs.
Brent and WTI retreat after a week of gains
Brent crude futures fell 2.4% to $105.03 a barrel on Friday, while U.S. West Texas Intermediate traded 2.75% higher at $99.66 per barrel. On Thursday, Brent had peaked near $108 a barrel and WTI topped $104.
Even after the pullback, Brent remained on course for a weekly gain of about 9%, set to close above $100 for the first time since mid-May, with WTI's week-to-date gain at 8.9%. The decline snapped five straight days of gains for Brent and an eight-day winning streak for WTI. The price drop followed word from Iranian state media that Tehran will meet Gulf states in Oman to discuss the Strait of Hormuz, a sign of diplomacy despite the week's sharp escalation.
Tanker rates hit records as attacks spread
Behind the price swings, the cost of shipping oil in the largest tankers has hit record highs. The Worldscale rate for supertankers loading from the Gulf of Oman to China reached around 450, equal to roughly $11.50 a barrel, the highest since the rate was launched this year after the start of the U.S.-Israeli war with Iran. Very large crude carrier rates on the West Africa to Asia route also reached record highs.
The spike followed the biggest wave of attacks on shipping since the U.S.-Iran war began in late February. Iran said it attacked 10 ships near the Strait of Hormuz on Wednesday after the U.S. sank five Iranian oil tankers, and Yemen's Iran-aligned Houthis reached the strategic island of Perim in the Bab el-Mandeb Strait on Friday, according to four Yemeni government sources. Vortexa analyst Ioannis Papadimitriou said renewed attacks between the U.S. Navy and Iran continue to push freight rates around the Gulf to new highs.
Inventories drop as risk, not supply, sets the price
The move also came against a backdrop of tightening U.S. supply. Commercial crude oil inventories excluding the Strategic Petroleum Reserve fell 0.4 million barrels to 424.1 million barrels in the week ending September 4, the EIA reported, a 0.1% drop from the prior week and a 0.1% decline from a year earlier. Yet Waleed Said, technical analyst at GivTrade, told Rigzone that a normally bearish inventory mix barely registered, since WTI closed the week up 6.7% at $102.48 and Brent closed up 5.9% at $107.63, the highest closes since May.
Said said Hormuz flows remain around half of pre-war levels and traffic through Bab el-Mandeb has collapsed since the Houthis seized Mokha, meaning oil is trading chokepoint risk rather than U.S. stockpiles. He added that higher crude is feeding inflation fears and pushing Treasury yields higher, dragging equities lower for four straight sessions.
Markets are bracing for a protracted conflict after a Wall Street Journal report said White House advisers had discussed with President Donald Trump the possibility the war could extend beyond his current term. Trump has said the conflict will end after the U.S. midterm elections and that oil and gas prices will fall after the November vote. According to CNBC, Deutsche Bank's Jim Reid said: "it is geopolitical fears driving everything".
PVM Oil Associates analyst Tamas Varga said the question for investors is whether the current supply deficit is structural or transitory, adding that a re-visit of April's peak of $126 remains possible even as elevated prices erode demand.
Sources: CNBC, Reuters via Investing.com, Rigzone
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