Crude oil prices climbed to their highest level in a month on Tuesday, as traders digested a significant reversal in the U.S. President's stance on imposing fees on shipping through the Strait of Hormuz. Concurrently, new attacks on vessels by Iran in the strait introduced fresh threats to energy flows.
WTI crude futures rose 1.5%, settling above $79 per barrel after earlier surging by approximately 4%. Brent crude closed near $85 per barrel.
Following pressure from Gulf region allies, the President reversed course in a social media post, abandoning a plan announced just a day earlier to impose a 20% fee on cargo transiting the Strait of Hormuz.
This policy shift was a welcome development for shipping firms, which had been deeply concerned by the breakdown of a U.S.-Iran ceasefire and the prospect of further disruptions at the world's most critical energy chokepoint. It also highlighted the difficult position faced by the administration: escalating hostilities with Iran, coupled with Tehran's refusal to relax its control over the Strait of Hormuz, is exerting upward pressure on oil prices.
Ryan McKay, a senior commodity strategist at TD Securities, stated, "Massive short-covering by money managers, combined with potential large-scale buying by CTAs, will only amplify the move. We need a quick de-escalation, or else energy markets' second-round reaction to this war could be much more severe."
As the President changed his stance, reports of new conflicts emerged across the Middle East. A U.S. official stated that American airstrikes on Iran had been ongoing for several hours. Iran's Fars News Agency reported multiple explosions heard on the country's Qeshm Island. Iran's Mehr News Agency claimed that Iran had launched missiles and drones towards Kuwait and Bahrain. Oman reported that a tanker had been attacked just outside its waters.
Analysts at Capital Economics, including David Oxley, wrote, "The risk of Iran retaliating by disrupting other Gulf states' oil exports for longer rises as long as the U.S. blockade persists. The key point is that, compared to earlier this year, the global oil market is now more vulnerable to further supply shocks."
August WTI crude rose 1.5% to settle at $79.34 per barrel.
September Brent crude gained 1.7%, closing at $84.73 per barrel.
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