Oil Prices Ease Despite Escalating Middle East Attacks
Key Takeaways
- •Brent crude and West Texas Intermediate each fell roughly 1%, trading at $89.46 and $83.54 per barrel respectively at the time of writing.
- •U.S. forces struck Iranian targets, Iran retaliated with missiles against U.S. troops in Jordan, and American and Saudi forces conducted operations against Iran-aligned militias in Iraq.
- •A drone attack hit a U.S.-owned storage tanker and two LNG tankers at Egypt's Port of Damietta, a major LNG terminal on the Mediterranean coast.
- •Ship-tracking data showed 39 commodity carriers exited the Bab el-Mandeb Strait on Tuesday, while transit through the Strait of Hormuz remained subdued.
- •ING commodity strategists cautioned that increasingly targeted Saudi oil infrastructure raises the likelihood of prolonged supply disruptions, especially in middle distillates like diesel and jet fuel where refining profitability spreads continue to set records.
Crude oil prices edged lower as traders focused on continued tanker traffic through the Bab el-Mandeb Strait, a critical chokepoint linking the Red Sea to the Gulf of Aden through which substantial volumes of oil and refined products transit daily, shrugging off renewed U.S.–Iran military strikes and a drone attack targeting vessels at an Egyptian port.
At the time of writing, Brent crude was trading at $89.46 per barrel, while West Texas Intermediate stood at $83.54 per barrel — both down approximately 1% since Wednesday's close.
The U.S. Central Command announced on Wednesday that it had carried out renewed strikes against targets in Iran. "The strikes are a powerful response to yesterday's attempted Iranian attacks on U.S. forces based in the Middle East," CENTCOM said, as quoted by Reuters.
Iran retaliated by firing missiles at U.S. troops stationed in Jordan. Simultaneously, U.S. and Saudi forces conducted operations against Iran-aligned militia groups in Iraq that were reportedly planning attacks on Saudi energy infrastructure.
Separately, Egypt confirmed a drone strike on a U.S.-owned tanker used for floating storage at the port of Damietta. Subsequent reports indicated that two LNG tankers were struck at the facility, which serves as a major liquefied natural gas terminal on Egypt's Mediterranean coast, according to Maritime Executive.
Despite the escalation, market participants appeared to concentrate on the flow of vessels out of the region. Ship-tracking data showed that 39 commodity carriers exited the Bab el-Mandeb Strait on Tuesday, even as transit through the Strait of Hormuz — the world's most important oil transit chokepoint, handling roughly a fifth of global petroleum liquids consumption — remained subdued.
"While overall volumes are reduced, oil continues to leak out of the region through multiple channels, and additional workarounds are being explored. The longer this situation persists, the more these alternative routes and methods will erode Iran's leverage over the Strait of Hormuz," IG Group analyst Tony Sycamore told Reuters.
ING commodity strategists struck a more cautious tone in a Wednesday note, writing: "Clearly, with Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows." The strategists highlighted that this risk is particularly pronounced in middle distillates — a product category that includes diesel and jet fuel — where crack spreads, the price differential between refined products and crude that serves as a gauge of refining profitability, continue to set records.
By Irina Slav for Oilprice.com.